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T-bonds

Interest Rate Futures and the First Cash Settled ContractCME: Eurodollar Futures ( CME:GE1! ), CBOT: Treasury Bond Futures ( CBOT:ZB1! ) This is the second installment of the Holidays series “Celebrating 50 Years of Financial Futures.” Before 1970, commercial banks did business by accepting short-term deposits at low regulated rates and offering longer-term business and personal loans at higher rates. Double-digit inflation changed all that. Federal Reserve eliminated interest rate ceilings on time deposits under 3 months in 1970, and on those over 3 months in 1973. Banks incurred huge loss from a negative spread with deposit rate higher than loan rate. Fast forward to 2022, we find ourselves in a high inflation and an inverted yield-curve environment again. The overnight Fed Funds rate (4.00%) is nearly 500 basis points higher than the 10-Year Treasury Note (T-Note) yield (3.51%) as of December 4th. Rising interest rates increase the financing cost from businesses to households alike. The Fed’s six consecutive rate hikes from March to November 2022 contributed to significant drawdown in the value of stocks, bonds, and commodities. If you bought $100,000 of Treasury bonds (T-bonds) in January, its market value could drop as much as 30% with bond yield jumping to 3.5% from 1.5%. If you owe $10,000 in credit card debt, monthly interest rate charge could run up to 25% a year from 15%. Like foreign exchange, interest rate is not a physical commodity. It is a right to holders of an interest-bearing product, and a liability to its issuer. The above examples show that both buyer and seller could have large financial exposure to changes in interest rates. To hedge interest rate risks, futures contracts were invented in Chicago futures markets, namely, Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME). CBOT Ginnie Mae Futures Government National Mortgage Association is a US government supported entity within the Department of Housing and Urban Development (HUD). The nickname “Ginnie Mae” come from its acronym GNMA. GNMA issues Ginnie Mae certificates, a type of mortgage-backed passthrough securities. Investors receive interest and principal payments from a large pool of mortgage loans. Since timely payments are backed by the full faith and credit of the US government, Ginnie Mae bonds are considered default risk free and have an AAA credit rating. Although they are free from default risk, holders of Ginnie Mae bonds are exposed to interest rate risk, as bond price moves inversely with bond yield. Sensing the need from savings and loans, mortgage bankers, and dealers of mortgage-backed securities, CBOT launched Ginnie Mae Bond Futures in October 1975. This was the first time a futures contract was based on an interest-bearing instrument. At contract expiration, futures buyers would receive actual Ginnie Mae bonds from futures sellers. While the Ginnie Mae contract has since delisted, it paved the way for the successful launches of other interest rate futures contracts in the 1970s and 1980s. CME Treasury Bill Futures Treasury bills (T-bills) are short-term securities issued by the US Treasury to help finance the spending of the federal government. New T-bills with maturities of thirteen, twenty-six, and fifty-two weeks are issued on a regular basis. The secondary market for T-bills is active, making them among the most liquid of money market instruments. In May 1972, the International Monetary Market (IMM) division of the CME launched foreign exchange futures, the first financial futures contract. In January 1976, the IMM listed futures contract on 90-day (13-week) T-bills. It was the first futures contract for a money market instrument. Nobel laureate Milton Friedman rang the opening bell on T-Bill Futures launch day. Upon maturity, seller is required to deliver T-bills with a $1 million face value and thirteen weeks left to maturity. Contracts for delivery in March, June, September, and December are listed. At any one time, contracts for eight different delivery dates are traded. T-bills do not pay explicit interest. Instead, they are sold at a discount to redemption value. The difference between the two prices determines the interest earned by a buyer. T-bill yields are quoted on a discount basis. Futures contracts are quoted on an index devised by the IMM, by subtracting the discount yield from 100. Index values move in the same direction as T-bill price. A rise in the index means that the price of a future delivered T-bill has risen. The formula for calculating the discount yield is: Discount Yield = ((Face Value - Purchase Price) / Face Value) X (360 / Days to Maturity) CBOT Treasury Bond Futures In August 1977, CBOT launched futures contracts on the T-Bonds. At the time, the birth of T-bond futures hardly seemed like a breakthrough. Financial futures were still in their infancy. Soybeans and corn were king in the CBOT trading pit. But all that changed in October 1979 when the Fed moved to strangle runaway inflation with a revised credit policy. The Saturday night massacre, as it was dubbed, ended decades of interest-rate stability. Interest rates bounced like a Ping Pong, affected by money supply, world events and inflation. Trading of T-Bond futures took off like a rocket. In addition to the traditional T-Bond futures (ZB) with 15-year maturity, CBOT also lists a 20-Yr T-Bond futures (TWE) and an Ultra T-Bond (UB) with 30-year maturity. In the Mid-curve, the T-Note suite includes 2-Yr Note (ZT), 3-Yr Note (Z3), 5-Yr Note (ZF), 10-Yr Note (ZN), and Ultra 10-Yr T-Note (TN). On December 2, 2022, daily volume of the first T-Bond futures was 388,370 contracts, while open interest reached 1,170,800 contracts. Daily volume of all CME Group interest rates futures and options contracts (IR) reached 13,786,454 lots, contributing to 54.1% of Exchange total. IR open interest was 78,244,297 lots, representing 70.4% of Exchange total. Cash Settlement Comes to Futures Market Up until now, futures contracts were settled by physical delivery of the underlying commodities. • Buyer of 1 CME Live Cattle may pick up 35 cows (40,000 pounds) from Union Stockyard in Chicago southside or take delivery at a cattle auction in Wyoming. • Seller of 1 CBOT Soybean contract would ship 5,000 bushels of the grain to a licensed grain elevator in Illinois, Iowa, or Kansas. • For CME Pork Bellies, settlement may involve title changes of warehouse receipt from seller to buyer for 40,000 pounds of the frozen meat in a cold storage. Even financial futures required physical delivery at that time. • For British Pound/USD contract, it is £62,500 in pound sterling. • For Ginnie Mae contract, it is $10 million worth of Ginnie Mae certificate. • T-Bond futures calls for delivery of treasury bonds with face value of $100,000 and maturity of no less than 15 years. As we discussed in “The Bogeyman in Financial Contracts”, there is inherent risk in the physical delivery mechanism. No matter how robust its original design is, industry evolution could outgrow capacity, rendering delivery failure under extreme market conditions. In December 1981, CME launched Eurodollar futures, the first contract with cash settlement feature. Cash settlement alone can be viewed as a financial revolution. Why? • It significantly reduces transaction cost, which in turn enhances the risk transfer or hedging function in futures. • It allows non-commercial users to participate in futures. Broader participation improves liquidity, and the price discovery as well as risk management functions. CME Eurodollar Futures Eurodollars are dollar-deposits held with banks outside of the US. There are two types of Eurodollar deposits: nontransferable time deposits and certificates of deposit (CDs). Time deposits have maturities ranging from 1 day to 5 years, with 3 months being the most common. Eurodollar CDs are also commonly issued with maturities under a year. Technically, buyer of Eurodollar future contract is required to place $1,000,000 in a 3-month Eurodollar time deposit paying the contracted interest rate on maturity date. However, this exists only in principle and is called a “Notional Value”. Cash settlement means that actual physical delivery never takes place; instead, any net changes in the value of the contract at maturity are settled in cash on the basis of spot market Eurodollar rates. Unlike T-bills, Eurodollar deposits, the underlying of Eurodollar futures, pay explicit interest. The interest paid on such deposit is termed an add-on yield because the depositor receives the face amount plus an explicit interest payment when the deposit matures. In the case of Eurodollar, the add-on yield is the London Interbank Offered Rate (LIBOR), which is the interest rate at which major international banks offer to place Eurodollar deposits with one another. Like other money market rates, LIBOR is an annualized rate based on a 360-day year. Price quotations for Eurodollar futures are based on the IMM Eurodollar futures price index, which is is 100 minus the LIBOR. In the following four decades, all financial futures are designed with cash settlement. Eurodollar futures paves the way for equity index futures, which were launched in February 1982 at Kansas City Board of Trade (KCBT) and April 1982 at CME. Without cash settlement, can you imagine how to deliver 500 different stocks on a market-weighted basis for the S&P 500 futures? Or 2,000 stocks for the Russell 2000? Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
CBOT:ZB1!Education
by JimHuangChicago
9
US02Y is the key for stocks and it has started to drop!This is a 1W time-frame chart, showing the correlation between the U.S. Government Bonds 2 YR Yield and the S&P500 (blue trend-line). Some may perceive the recent 2-month rally on stocks as a coincidence but the US02Y price action shows that it is not and has a direct correlation with it. The 1W RSI on the US02Y has been falling within a Channel Down since the start of February 2022, while at the same time the actual price has been rising within a Channel Up. That is a technical Bearish Divergence. The same Bearish Divergence was last seen from late January 2018 up until the week of November 05 2018. As shown on the chart this lasted 41 weeks (287 days). The start of this Bearish Divergence happened when the stock market(S&P500) had an initial pull-back event entering into a year long period of volatility, followed buy an even stronger correction. Once the US02Y started to drop, the stock market bottomed and started rising sustainably (until of course the non-technical black Swan event of COVID). Right now, we are two weeks past the 41 week (287 days) mark and the US02Y has been dropping for 4 weeks. As mentioned, the stock market has been (aggressively) rising since the October 10 2022 1W candle. The fractals are identical and this could be a repeat of the 2019 rally. Whether we see it extending or not, the US20Y certainly holds the key. ------------------------------------------------------------------------------- ** Please LIKE 👍, SUBSCRIBE ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support me, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- You may also TELL ME 🙋‍♀️🙋‍♂️ in the comments section which symbol you want me to analyze next and on which time-frame. The one with the most posts will be published tomorrow! 👏🎁 ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US02YShort
by TradingShot
4
US10Y - 10Y Bonds: And Reverse Forest RuuunLet's see: This was the chart I posted this year: We reached the U-MLH. This is the stretch to the upside. How ever, it could go further towards the Moon. But usually, if price get rejected at the MLH's, we see the opposite move. In this case to the downside, to the Centerline. This is a great opportunity, the second time this year in the 10Y Bonds, which I clearly will not miss. Additionally this would indicate a bounce in the index markets (S&P500, Nasdaq etc.).And if you pay attention to my S&P Chart, then you know that the Centerline is reached too there. So prepare for a possible bounce, even it's just temporarily.
TVC:US10YShort
by Tr8dingN3rd
BKN | BlackRock Fixed Income | Good EntryBlackRock Investment Quality Municipal Trust Inc. is a closed ended fixed income mutual fund launched by BlackRock, Inc. It is managed by BlackRock Advisors, LLC. The fund invests in fixed income markets. It invests primarily in investment grade municipal bonds municipal obligations exempt from federal income taxes. Blackrock Investment Quality Municipal Trust Inc. was formed on February 28, 1993 and is domiciled in United States.
NYSE:BKNLong
by DivergenceSeeker
US10Y Still bearish at least on the short-termThe U.S. Government Bonds 10YR Yield (US10Y) has gone a long way since our top prediction a month ago: As you see, the Lower Highs 1D RSI Bearish Divergence, accurately projected the top and the price broke much lower than the 1D MA50. On a short-term horizon, as long as it fails to close above the 4H MA50 (blue trend-line), we will be targeting the 1D MA100 (green trend-line). Only a break above the 4H MA200 (orange trend-line) can restore the bullish trend, towards the 4.330 High as it happened on June 01 2022. On the other hand a closing below the 1D MA200 (yellow trend-line) would confirm the long-term trend switch from bullish to bearish. ------------------------------------------------------------------------------- ** Please LIKE 👍, SUBSCRIBE ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support me, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- You may also TELL ME 🙋‍♀️🙋‍♂️ in the comments section which symbol you want me to analyze next and on which time-frame. The one with the most posts will be published tomorrow! 👏🎁 ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US10YShort
by TradingShot
1
Fundamental & Technical | BTC📉Bitcoin is currently testing a decisive resistance line (Zone 2). Current existing factors influencing financial markets: * Decreasing investors confidence 1. The continuance of recession-indicating economic reports - A recession is expected (lastest FED + inflation rate reports) 2. Further war escalations - Russia defaulting, economic allies are changing and higher % of GDP devoted in military sector. 3. Political uncertainty - Boris Johnson resigning(UK)... 4. Natural diseases + disasters - Covid 3rd/4th waves, extreme hot weather 1. FED Interest Rate decision on to be posted @ 18:00 on 2022-07-27. Current inflation reads at 9.1 (2022-07-13), beating the consensus (expected) inflation (8.8). There is currently a lot of uncertainty over financial asset valuation. Worse economic statistics than predicted will likely imply our volatile digital assets will drop heavily once the interest rate decision is out(and if its hawkish). 2. Japan warns over Chinese and Russian increasing cooperation (economic & military). Rising concerns for investors: - Increasing number of involved countries (alliances) - Lasting severity of war donations - Rising war spending (2.5% of total GDP increase in UK) 3. Depending on the UK's new PM outcome, the country's fiscal(tax) policies may be on each extreme. The candidates: * Rishi Sunak vowing to increase taxes * Penny Mordaunt would raise income tax thresholds for basic and middle-income earners. (Lowering tax revenue) * Foreign Secretary Liz Truss mentions creating ''low tax, low regulation zones''. (Lowering tax rates) 4. Covid + Heat waves - Extreme heat waves in Europe affecting productivity, trade, currency valuations and etc. - Currently, Covid waves have a greater impact on LEDCs. Corruption, poor infrastructure, worse weather control(worsening symptoms severity) and fake vaccine passports may all contribute towards this fact. Thereby, I believe a drop will occur to satisfy the market changes within the zone 2. Risk/rewards ratio: 3.23 Open Short: 265.75M Take Profit: 173.17M Stop Loss: 293.74 Note: the graph is BTC/Gold. I will be posting an explanation for it's utility Thanks for your time! San:)
CRYPTOCAP:BTCShort
by Sanzhar_m
Double bottom confirmed on the NasdaqA simple reversal trade setup on the Nasdaq. The tech index confirmed a double bottom pattern breakout on November 11th, the day after an epic rally which is among the best days of 2022. The breakout has not seen any momentum as different Fed heads have come out saying different things, and some geopolitical tensions. The markets are still determining if the Fed will slow down on rate hikes and if inflation will slow down. These two things are a topic for a different post. Let's talk about the chart we see. The Nasdaq saw buyers jump in right at the retest zone of the breakout pattern. This is just typical of what we expect from a breakout trade. Traders can either enter now and place their stops below the breakout zone, or await for the recent highs of 11,850 to be taken out before jumping in long. The latter is the more safer way to play and increases your probability of success as it confirms a higher low. Since trading is a business of probabilities, this is a very prudent way to play the trade. There are also TWO other charts which are pointing at higher markets: First, the US 10 year yield is the chart you must be watching to determine where stocks are going. We have a reversal pattern on this, and as yields drop, stock markets rise. Of course, a move into bonds needs to be assessed properly. We have seen a case where the 10 year dropped because of fear (the Poland-Ukraine missile issue). But generally, as yields drop, it is the market pricing in the Fed being less hawkish and even pausing rate hikes soon. Secondly, the US Dollar Index (DXY) heading lower is a positive sign for markets for the same reason as above. A less hawkish Fed. The DXY also broke down and we are awaiting our first lower high. Both of these continuing lower means a higher chance that stock markets, and yes the Nasdaq, continue their reversal recovery. But of course, the Fed in December could put a major halt to this move.
OANDA:NAS100USDLong
by Uncharted-FX
1
Go long stocks short 10y bond yieldLook at where the 10y yield is currently trading - its right above its 200 period moving average at major resistance. This is yet another indicator to me that stocks have bottomed and inflation will start to fall away this year. Bond yields should fall away again as we move through the year. I bought heavily into stocks last week, amazon at $2050, Netflix at $170, Meta at $189, Snap at $22 plus so many others. This bond chart really shows me that things are due for a major reverse now and if you caught my dollar (DXY) short post on Friday you are already massively in profit in that short too. There are so many great opportunities now to add to stocks on dips and keep shorting the dollar (provided we see a nice steady drop in CPI figures each month for the rest of the year).
TVC:US10YShort
by breakoutfakeout
8
TLT 101.13 Target Achieved, New Pattern EmergingTechnical & Trade View TLT ishares 20+ Year Treasury Bond ETF Trade View 101.13 Target Achieved, New Pattern Emerging Bias: Bullish Above Bearish below 99.00 Technicals Primary support is 99.00 Primary upside objective 102.85 Next pattern confirmation, acceptance above 101.50 Failure below 99.00 opens a test of 97.90 20 Day VWAP bullish, 5 Day VWAP bullish Institutional Insights According to analysts at Goldman Sachs ‘ Based on our valuation-adjusted estimates of preliminary data from the US Treasury ,foreign investors net purchased long-term US securities in September. Foreigninvestors net purchased long-term Treasuries and US equities, and net sold long-term US agency securities and corporate bonds. Private sector investors drove flows across asset classes.Japan was the largest net seller of long-term Treasuries in September, on our valuation-adjusted estimates, as the Ministry of Finance Intervened in foreignexchange markets to support the Yen for the first time in 24 years. Our estimates suggest that this was the largest one-month net sale of long-term Treasuries byJapanese investors since the Treasury’s securities holdings data began in 2012(although March 2022 came close). Belgium was the largest net buyer of long-termTreasuries at the country level. At the regional level, Europe and Latin America netpurchased long-term USTs while Asia was a net seller’
NASDAQ:TLTLong
by Tickmill
US10Y Is more selling pressure ahead?The U.S. Government Bonds 10 YR Yield (US10Y) confirmed our huge Bearish Divergence spotted on our October 25 analysis and started the first pull-back since July: The price is now below the 1D MA50 (blue trend-line) for the first time since August 19 and today is testing it as a Resistance. A double candle close above the 1D MA50, restores the bullish trend towards the October 21 High. Failure to establish two 1D candle closings above it, should most likely extend the selling pressure towards the 1D MA100 (green trend-line), which was where the pull-backs of March 07 and November 09 2021 found Support. A closing below it targets the final long-term Support of 1D MA200 (orange trend-line). As you see on the chart, that still wouldn't change the long-term bullish trend on the US10Y as it would hit the bottom (Higher Lows trend-line) of the Channel Up (green). On the other hand a closing below the 1D MA200, would constitute a long-term trend change to bearish and target first the 1W MA100 (red trend-line). ------------------------------------------------------------------------------- ** Please LIKE 👍, SUBSCRIBE ✅, SHARE 🙌 and COMMENT ✍ if you enjoy this idea! Also share your ideas and charts in the comments section below! This is best way to keep it relevant, support me, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- You may also TELL ME 🙋‍♀️🙋‍♂️ in the comments section which symbol you want me to analyze next and on which time-frame. The one with the most posts will be published tomorrow! 👏🎁 ------------------------------------------------------------------------------- 👇 👇 👇 👇 👇 👇 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US10Y
by TradingShot
TLT 99.19 Target Achieved, New Pattern EmergingTechnical & Trade View TLT Ishares 20+ Year Treasury Bond ETF Trade View 99.19 Target Achieved, New Pattern Emerging Bias: Bullish Above Bearish below 97.90 Technicals Primary support is 97.90 Primary upside objective 101.13 Next pattern confirmation, acceptance above 99.50 Failure below 97.90 opens a test of 96.90 20 Day VWAP bullish, 5 Day VWAP bullish Today’s New York Cut Option Expiries: 1.1695-00 (414M), 1.1800 (319M) Institutional Insights According to analysts at Goldman Sachs ‘ Inflation miss-fueled bond rally likely overdone.Through the week, Fedcommentary has suggested a strong preference to slow down the pace of hiking. The inflation miss—October core CPI rose 0.27% month-over-month,below expectations, with services inflation slowing somewhat more than our economists’ projections—makes the step down at the upcoming FOMC meeting more likely, though Fed speakers appear to have been laying the groundwork fora slower pace irrespective of realized economic data. Markets repriced FOMCOIS beyond this December even more aggressively, both bringing the peak rate back below 5% and pricing additional easing beyond the (lowered) peak. While The details of the CPI report suggest there could be some downside risk to our current projected CPI path, we do not believe this materially changes the risks of hike cycle extension. Outside of unanticipated activity weakness (that is as yet not visible), we see a fundamental inconsistency in this price action. While a deepening of forward curve inversion is indeed appropriate when anticipating a recession, given the underlying strength of the economy, we believe the Fed will need to raise rates above current peak pricing for that to occur; a higher terminal rate, in turn, is more likely if inflation remains uncomfortably high. Either Combination—a higher terminal rate, but current levels of inversion, or the current terminal rate, but less deep inversion—argues for both higher end-2023 forward rates a higher average level of rates over the next two years. In case of the former, the cuts being priced offset the hikes earlier in the year, leaving net Fed pricing for 2023 one of the least aggressive among G10’
NASDAQ:TLT
by Tickmill
2
GOLD and Bond Yields. Are they starting to close the gap?Many may wonder what is the main driving force behind Gold's recent rally and a first answer would be the strong fall on the Dollar Index, since Gold is valued in USD. This is true but the basic driver leading Gold higher are the Bond Yields, with Bonds being an asset that is in direct competition with Gold, in the same safe haven category that at times is considered more attractive due to offering yields. Bond yields shown in blue on this weekly chart have been rising non-stop since August 2020, which was Gold's technical market peak (excluding the most recent March 2020 which was fundamentally fueled by the Ukraine/ Russi war). Gold's November rise has been the strongest since that time as it is further assisted by the big drop on the US Dollar Index. This isn't yet a confirmed bearish reversal for the bond yields (US10Y) but is close to do so. As you see historically, especially since 2012 (after Gold's previous cyclical top), we had periods that the gap between Gold and yields widened but was always closed. These two negatively correlated assets have diverged by a wide margin since August and it is highly likely that the recent Gold rally/ Yield pullback is the start of their convergence again. ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ## ## Also DONATIONS through TradingView coins help our cause of increasing the daily ideas put here for free and reach out more traders like you. ##
FX_IDC:XAUUSDLong
by InvestingScope
Bond Market Rallies After Inflation DataBonds have soared after yields collapsed due to CPI coming in slightly better than expected. This follows months of consistently high readings fueling a hawkish Fed. With this reading, the markets will likely start to anticipate a pivot to a less hawkish stance. ZN broke through our target of 110'27, and moved a full handle above that to 111'26. It is currently meeting resistance at 111'29 or so, where a red triangle on the KRI is confirming resistance. Watch for ZN to equilibrate as the news gets priced in. If we can keep going then 113'12 is the next target, otherwise, 110'27 should give support.
CBOT:ZN1!Long
by quantguy