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Treasuries

Monster Bear Flattener AheadHistorically - inflation has never been defeated except when a long term bond (in this case the 30 year) yield is above the rate of inflation. The collapse of supply has meant too much money chasing too few goods. This means more and more capital is sucked into a blackhole of wage-price spirals. Currently the US has trapped itself against a wall and a hard place in that the 30 year treasury yield is well below the inflation rate. A situation which hasn't happened to the US in 100+ years (I can't speak for the Civil War Era, I haven't found data back that far). You can see the 30 year yield history by searching Google for "Fred 30 year yield" (Can't post links yet). The only logical path to achieve this is a bear steepening when people realize that inflation cannot come down otherwise and then begin a sell-off. Yield curves will stay inverted since the FED has put a floor on interest rates which the treasuries are already starting to get close to. "Restrictive rates" = = a bear flattening environment. We are currently in a "bull steepener" attempt which will fail.
TVC:US30YShort
by DarthTrader1357
1
The Real Cost of Fed Rate HikesCBOT_MINI:10Y1! CBOT_MINI:2YY1! The Federal Open Market Committee (FOMC) is scheduled to meet on July 26-27. Market widely expects a 75-basis-points (bps) Fed Funds rate increase, from current target of 1.50%-1.75% to 2.25%-2.50%. The call for a 100-point hike, while still feasible, is weakened after U.S. gasoline price dropped 70 cents per gallon in the past month. New data hints that the runaway inflation may be contained. Federal funds Rate is the interest rate that banks charge each other to borrow or lend excess reserves overnight. It is the most important global interest rate benchmark, as it directly or indirectly influences the borrowing cost for governments, corporations, and households. By the end of July, Fed Funds would have gone up by 2.25% (assuming 75 bps hike in July) from zero before March. The Fed is not afraid of raising rate even higher until inflation moves back to its 2% policy target. How much will a higher interest rate cost for government, business, or household? I will illustrate the impact of 100bps rate increase in this analysis. All data comes from either the Fed or USdebtclock.org, unless otherwise noted. Total Debt : By the end of Q1 2022, the total debt outstanding in the U.S. by both public and private sectors is $90.1 trillion. Mind-boggling. What does the number mean? • U.S. GDP was $23.0 trillion in 2021. Debt-to-GDP ratio is 3.92. It would take all Americans four years to pay off their debt, without spending or paying interest. • US population is 332,403,650 as of January 2022 per US Census Bureau. Debt per capita is $270,949. Each time a baby is born, he or she already owes more than a quarter million dollar. US National Debt : $30.6 trillion based on USdebtclock.org real-time calculation. This is just the debt owed by Federal government and various federal agencies. • National Debt to GDP ratio: 133%. • Federal tax revenue is estimated at $4.4 trillion in 2022. If our government just levies taxes and does nothing else, it will take seven years to pay off the debt. • Federal budget is $6.0 trillion in 2022, with budget deficit running at $1.6 trillion. Interest on debt is $440 billion, the fourth largest budget item. If interest rate goes up 100 bps across the yield curve, federal government will have to come up with $306 billion extra to service the debt. • Federal budget in 2022: $6.0 trillion o budget deficit $1.6 trillion o Interest on debt $440 billion (4th largest budget item) o Remark: $306 billion extra to service the debt, if interest rate goes up by 100bps • When all the rate hikes are over, annual debt interest payment could be over $1.0 trillion. It would become the 3rd largest budget item, behind Medicare ($1.4 trillion), Social Security ($1.0 trillion) and ahead of Defense ($751 billion)! State and Local Government debt : $3.3 trillion, of which $2.1 trillion from state governments and $1.2 trillion from local governments. • If interest rate goes up by 100 bps, state and local governments will have to come up with $33 billion extra to service their debt. • We may expect tax hikes from state and local governments, while public services may be cut back at the same time. US Corporate Debt : $11 trillion, which includes all debt issued by non-financial corporations domiciled in the U.S. • If interest rate goes up by 100 bps, American businesses will have to come up with $110 billion extra to service their debt. • We may expect higher prices for goods and services, as businesses pass on the interest cost to consumers. • Companies with high debt ratio may increase the chance of delinquency. US Household Debt : $23.5 trillion. This includes mortgage, auto loan, credit card loan and student loan, etc. • Personal debt per citizen is $70,304. If interest rate goes up by 100 bps, each person will have to come up with $703 extra a year to service their debt. • American families are fighting with a higher cost-of-living on multiple fronts. If the U.S. falls into a recession, their financial situation will worsen significantly. • Mortgage delinquency is expected to rise significantly. The remainder, approximately $21 trillion, is outstanding balance of credit instruments issued by banks and other financial institutions. Believe it or not, we have only just scrubbed the surface of our mounting debt problem. Most government liabilities are unfunded or underfunded. Each year, the Federal Government borrows new money to pay off the maturing debt. Medicare, Medicaid, and Social Security are pay-as-you-go programs. Government taxes current workers to pay for the benefits of retirees, without any money saving up for current workers. No one has a crystal ball if the benefits are still there when they reach retirement. With such a depressing future ahead of us, are there any trading opportunities? The answer is yes. I am counting on the inverted yield curve to return to historical normal. Yield curve plots the interest rates on government bonds with different maturity dates, notably three-month Treasury Bills, two-year and 10-year Treasury Notes, 15-year and 30-year Treasury Bonds. Bond investors expect to be paid more for locking up their money for a long stretch, so interest rates on long-term debt are higher than those on short-term. Plotted out on a chart, the various yields for bonds create an upward sloping line. Sometimes short-term rates rise above long-term ones. That negative relationship is called yield curve inversion. An inversion has preceded every U.S. recession for the past half century, so it’s seen as a leading indicator of economic downturn. On July 21st, the yield on two-year Treasury notes stood at 3.00 percent, above the 2.91 percent yield on 10-year notes. By comparison, two-year yields were one percentage point lower than the 10-year yields a year ago. Why are we seeing yield curve inversion now? Short-term yield directly responded to Fed rate hikes. It has gone up 225 bps in five months. Longer term yields are determined by credit market supply and demand. The prospect of an upcoming recession held off lending by businesses and households alike, keeping the yields relatively stable. In my opinion, yield curve inversion could not sustain for long. Borrowers would flock to lower rate debt, pushing up demand for longer term credit. Market force would revert the yield curve to a normal one with interest rates on long-term debts higher than those on short-term ones. Are there any instruments we could leverage to trade the reversal of yield curve inversion? Long the Spread of CBOT Micro 10-Year Yield (10Y) and 2-Year Yield (2YY) . Traditional Treasury Futures are quoted in Treasury Notes price, which can be viewed as the present value of future payments that bondholder will receive – interest payment every six months and the return of principal at par value at maturity. Micro Yield Futures are more intuitive. They are quoted in yield directly. On July 22nd, August 10Y Yield Futures (10YQ2) was settled at 2.819. August 2Y Yield Futures (2YYQ2) was settled at 3.06. The 10Y-2Y spread is -0.241. The 10Y-2Y spread has been positive in recent years. It turned negative in the beginning of July as we experienced the inverted yield curve. I expect the spread to return to historic normal - a positive number, in the coming months. To trade Micro Yield futures, margins are $240 for 10Y and $330 for 2YY. A long spread can be constructed by a Long 10Y and a Short 2YY positions. The great thing about a spread trade lies with the fact that you don’t have to be right in predicting the direction of interest rates. Spread will be widened if 10Y rises faster than 2YY. Even in a falling rate environment, if 10Y fell less than 2YY, the spread will be enlarged too. 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.
CBOT_MINI:10Y1!Long
by JimHuangChicago
1
Uranium the anti-COVIDThanks for viewing. No, not as a treatment - please don't inject uranium as a treatment (if Uranium came in a bottle it would need a warning for Americans). Competition? What I mean is that Uranium has been on a run starting from when the equity markets showed weakness - and has yet to show signs of slowing. I'm not sure what the relationship is yet, as crude, coal, and natural gas are down in 2020, which would make them more competitive as energy sources. Energy Security? It could be that crude, coal, natural gas, wind turbines, and solar panels all have rather long, and as we have seen, potentially vulnerable supply chains. Maybe, it is about energy security. Uranium needs for the US aren't all mined at home so that wouldn't account for it - although adding supply from long-standing allies like Australia could probably supply the needs of North America while having security of supply. Is it about the environment? That could be part of the picture - as long as everything is well managed. There is that "catastrophic and uninsurable" hazard if things go wrong. The energy itself is clean, although the capital expenditure is considerable. Finding a long-term storage place for the waste hasn't been solved yet in the US. Hard assets? Expectations of future inflation in light of historic levels of quantitative easing and currency printing are possibly driving the search for hard assets with use-value. As I look around the markets, very little appears undervalued. Equities, bonds, treasuries, gold all appear to be, if not over-valued, then not cheap. The most popular store of value in the world, and the destination of huge amounts of funds: treasuries don't even seem to be worth a second look at the moment and any up-tick in interest would wipe out a significant portion of those positions. Expectations of an up-tick in military demand? I certainly hope not. End of the bear? Maybe it has been long enough after Fukushima that people see an undervalued commodity. There has been a significant rise in plans for new nuclear power plants. Anyone have any plausible fundamental analysis to add?
AMEX:URALong
by flyinkiwi10
10-Year Treasury Yield Trendline Breakout Faces Next TestThe 10-year Treasury yield confirmed a breakout under a near-term rising trendline from March, opening the door to reversing the uptrend since then. Rising concerns about a recession in the United States, also amid a general slowdown in global growth expectations, are pressuring bond yields lower. Ahead, the 10-year rate is facing the May low at 2.705 where the 100-day Simple Moving Average is fast approaching. The latter could still reinstate the dominant upside focus. Otherwise, more pain may be in store. Below is the 61.8% Fibonacci extension at 2.3667. Resuming the uptrend entails a push back above the current 2022 high at 3.497. TVC:US10Y
TVC:US10Y
by QM_Dubrovsky
How long could deflation last? What about bonds?As most commodities are currently collapsing, it is very hard to keep believe that inflation is going to go higher from here. June could be the first month with a negative MoM CPI print, but it probably won't be the last. As deflation is taking inflation's seat, bonds have been looking attractive for some time. Essentially we got a blow of top in yields (capitulation bottom in bonds), and now bonds are rallying. It's totally normal as bonds took out the lows, and are now showing major strength at a time where the dollar is strong, while commodities, stocks and real estate looking weak. The truth is that there is no escape from a major global recession. Commodities could fall a lot more until Central banks reverse course. There is too much debt and the only way to get out is by printing, while all the rate hikes will only eventually result in a crash. It's just that rate hikes have a delayed effect and most investors haven't realized what is coming yet. Is the inflation story over? I don't think so. We are just in a very a nasty recession, that could lead to a deflationary collapse. Essentially a liquidity crunch that would cause investors to capitulate, and then force the Fed to step in to save the system. There is no way the Fed will hike rates more than 0.5-1% from here, and there is no way the Fed won't be forced to cut rates and resume QE by June 2023. The bond market reversing like this is an indication that the Fed is about to make a mistake by raising rates once or twice in the next few months, as bond yields are already coming down. It's interesting that bond yields rose more than in 2018 before they reversed and fell below the Fed Funds Rate (FFR), yet FFR is currently 0.75% lower than when the Fed paused in 2018. Could easily see FFR getting down to 0 in the next 12-24 months as the financial system faces collapse yet again, but I don't see bond yields going as low as they did during Covid. What I see is long duration bonds going up to the key breakdown zone, around 130-135 on TLT or bond yields going up to 2.4-2.6% before moving higher again. Essentially I do see a major deflationary episode ahead, I do believe bonds can go up, I don't believe the Fed will ahead of the problem and that there isn't much they can do. However at the same time I don't believe that the inflation story is over, as I do see higher inflation coming once we are done with this episode. Why? Because a lot of production of stuff will go offline, while governments print a ton of money to save the system. Less goods, more money... No way inflation won't happen again. The debt bubble is popping and long term this is inflationary. So far we've seen bonds divergence from their long term trends, first with a blow off top, and then with a rapid decline that swept the lows. Could we get back into the main trend? It's possible, but I don't think so. All I see is a similar retest to what we go in 2021, where bonds broke down and then retested the breakdown level before going lower. TLT will fill the gap and then decide where it wants to go. Definitely wouldn't be surprised if bonds chopped in a certain area for a while, but ultimately I think we are going lower. Of course we could go lower even during a deflationary period, as everyone is liquidating whatever they can. If people need dollars, they will sell anything for them, including dollars. At the moment bonds are still very attractive, yet this doesn't mean that if people need cash they will hesitate to sell them.
NASDAQ:TLT
by BitcoinMacro
4
US Inflation is Nearing a Harmonic PeakIf we are to base our views of this chart like we would any other price chart, the harmonics we see forming here would imply that US Inflation is reaching a peak and that we will see Inflation come down signfiicantly over the the coming years. If i were to give a target i'd say we'd wanna see it come down to atlest 3% as a first target but it could go down even more depending on how tight things get. The smaller harmonic is a Bearish Butterfly with a reversal zone between the 1.272 and 1.618 and the bigger one if we get that high is a Bearish Shark. Ideally we'd like to see the Butterfly playout and us not to have to go as high as the Shark.
ECONOMICS:USIRYYLong
by RizeSenpai
5 Years of the Yield Curve 2018 - Flattening curve throughout the year with some slight inversion towards the end. 2019 - Complete inversion early in the year lasting awhile. Entire curve beginning to fall. 2020 - COVID Fed response slams the short end to the ground with the longer end having a pretty muted reaction. 2021 - Curve starts to stretch with short rates being extremely low and long rates showing pretty strong upside. 2021 - So far, the short rates have become unhooked from the 0 line and launched towards long rates. The curve has inverted again and there are no signs of slowing on the short end.
TVC:US01Y
by Seth-Goldberg
When this trendline breaks, Japan may hyperinflateJapan's central bank is buying unlimited amounts of Japanese debt in order to maintain yields around 0.25%. This ratio shows yields over the central bank's balance sheet. When this trendline breaks to the upside, it essentially means that Japanese debt is being sold faster than the central bank can buy. Japan may be going through some serious financial events very soon. www.cnbc.com The bank of Japan is selling US treasuries in order to buy more Japanese treasuries. This may cascade into US problem of rising interest rates and unsustainable debt levels being that Japan is the largest foreign holder. www.bloomberg.com
TVC:JP10Y
by rrmhearts
Dead Cat Bounce for Bonds?Bonds have pressed higher following the Fed's 75bps rate hike. We have broken out of 115'29 back into the 116 handle, topping out at our level at 116'20. A red triangle on the KRI suggests that we are facing resistance here. We do appear to be seeing a bull wedge consolidation pattern, but the Kovach OBV has leveled off, so it is likely we will fall from here. Watch 115'29 or 115'03 for support. If we are able to break out further, the next target is 117'08.
CBOT:ZN1!Short
by quantguy
US 10Y Treasuries Short Term BearishCurrently watching the 10Y Treasury Yield to hit resistance and pull back. 3% should be a big resistance level for now. Short term Fibonacci target of ~2.6%. This will be bullish for equities. The recent pivot low broke structure to the left, where the low in late April was broken. This is now a bearish retracement towards the highs, and will be watching for fib levels or a double top as resistance. The bigger picture monthly chart (below) shows a big supply zone resistance at 3%. This area of supply has been hit, and a further reaction to the downside expected. Also, the yield is stretched away from the monthly 21ema, with the 21ema currently below the 200sma. The stochastic momentum index (SMI) is also on overbought zone with bearish divergence.
TVC:US10YShort
by FourC
USDX Daily TA Cautiously BullishUSDX Daily cautiously bullish. *Equities are down, cryptos are down, commodities are down (yes Gold included), real estate/housing market down, inflation up and the US dollar (as well as Russian ruble)... up. The Fed is expected to announce anywhere from a 50bp-100bp rate hike this Wednesday if they want to be in line with their promise to go "beyond neutral" to ring in still growing inflation; 50bp would likely assuage markets in the short term and stall the dollar, whereas 75bp+ would likely send markets lower and keep pushing up the dollar.* Recommended ratio: 90% USDX, 10% cash. Price is currently in Discovery as it is currently printing a new ATH at $105.05 amidst a big push back into treasuries (10y/30y). Volume remains Moderate (high) and is currently on track to favor buyers for a fourth consecutive session if it can close in the green in today's session. Parabolic SAR flips bearish at $101.36, this margin is mildly bearish. RSI is currently breaking above 63.78 and is trending up at 68.60 as it fast approaches overbought territory. Stochastic remains bullish and is currently on the verge of testing max top (where it can potentially coast in the bullish "autobahn zone" for a while). MACD remains bullish for a second consecutive session and is currently trending up at 0.39, the next resistance is at 0.46; if it blows past 0.46, it will likely test the uptrend line from August 2020 at around 0.80 resistance. ADX is currently trending up at 23 as Price continues to rise, this is mildly bullish and becomes very bullish if it can maintain this same correlation above 25. If Price is able to continue in its Discovery, the next psychological level to watch for is $110. However, if Price retreats from here then it will likely test $103.77 support. Mental Stop Loss: (two consecutive closes below) $103.77.
PEPPERSTONE:USDX
by dailytaguy
Bonds Stabilize at LowsBonds have found support just above our level at 117'19. We appear to be forming a bear wedge, but the Kovach OBV is flat, suggesting we may range at current levels. After the precipitous decline from 121'00, it is likely that we will establish value in a sideways correction or even a relief rally, before another selloff. If we break down further, then 117'08 is the next level where we should anticipate support. After that, there is a vacuum zone to 116'20. A relief rally could take us as high as 119'01.
CBOT:ZN1!
by quantguy
Bonds Test Higher LevelsBonds have edged up higher, with ZN hitting our target of 121'00. This is a strong psychological and technical level. We are seeing a bit of a divergence between the price action and the Kovach OBV so unless more momentum comes thorugh, anticipate a dip or some ranging between 120'14 and 121'00. If we dip further, 119'23 should provide support. If we are able to break out further, then we have a fairly wide vacuum zone to the next level and target at 121'28.
CBOT:ZN1!Long
by quantguy
Bonds Pick UpBonds have found support and made a run for higher levels. The ten year dipped 119'23 into the 118's, finding support just above our level at 118'04. We then saw a rebound to 120'14, which we have been identifying as the next target after 119'23. It will take some momentum to break this level however, since this is a relative high from back in April. We are already seeing steep resistance here confirmed by a red triangle on the KRI. The Kovach OBV is gradually trending up, but is a oscillating with the dips, suggesting we need to see more momentum to come through to sustain the rally. If we selloff further, then we should see support at 119'01 then 118'04.
CBOT:ZN1!
by quantguy