Get started

Treasury

Jamie Dimon’s Hurricane and the Bond Market in Early JuneIn 2021, as the US central bank and the Secretary of the Treasury continued to call rising inflation a “transitory” and pandemic-inspired event, the bond market declined. Bonds watched prices rise while the economists were pouring over stale data. Meanwhile, the Fed and government planted inflationary seeds that sprouted during the second half of 2020, bloomed in 2021, and grew into wild weeds in 2022. The consumer and producer price data began to flash a warning sign in 2021, with the economic condition rising to the highest level in over four decades. The Fed and the Treasury finally woke up. While the Biden administration was already “woke,” the data awakened them to a point where late last month, Treasury Secretary Janet Yellen admitted “transitory” was a mistake. However, there was no admission and self-realization that monetary and fiscal policies created the inflation, and ignoring the warning signs only made it worse. A storm forecast from JP Morgan Chase’s leader Bonds are sitting near the lows The Fed’s FOMC meets on June 14 and 15 Higher rates are on the horizon Expect lots of volatility in markets The bond market was far ahead of the Fed and the Treasury, which should have been another warning sign. Consumer and producer prices have skyrocketed, and the central bank is using demand-side tools to address the economic fallout. Meanwhile, the war in Ukraine, sanctions on Russia, and Russian retaliation have only exacerbated the inflationary pressures, as they create supply-side issues making demand-side solutions impotent. The Biden administration blames the rise in energy prices on Russia, but they were already rising before the invasion and sanctions. The shift in US energy policy to a greener path is equally responsible for record-high gasoline and other fuel prices. At the end of 2021, a conventional 30-Year fixed-rate mortgage was just below the 3% level, and in less than six months, it rose to 5.5%. On a $300,000 loan, the move increases the monthly payment by $625, a significant rise. We are in the early days of an economic storm that began with the pandemic, continued with a lethargic Fed and government officials, and was exacerbated by the first major war in Europe since WW II. We have not seen the peak of the storm clouds gathering for more than two years. A storm forecast from JP Morgan Chase’s leader Jamie Dimon, the Chairman and CEO of JP Morgan Chase, called Bitcoin a “fraud.” A few short years ago, he said he would fire any trader “stupid” enough to trade cryptocurrencies on the bank’s behalf. As recently as late 2021, he said he believes Bitcoin is “worthless.” So far, he has been dead wrong on the asset class. The financial institution he heads replaced real estate with cryptocurrencies in late May, calling them a “preferred alternative asset.” In his latest comments on markets across all asset classes, Mr. Dimon issued a warning. Quantitative tightening that will ramp up to $95 billion in reduced Fed bond holdings and the Ukraine war led him to tell market participants, “You’d better brace yourself. JP Morgan is bracing ourselves, and we’re going to be very conservative with our balance sheet.” He began by saying, “You know, I said there’s storm clouds, but I’m going to change it…it’s a hurricane.” Mr. Dimon believes QT and the war create substantial changes in the global flow of funds, with an uncertain impact. The leading US bank’s CEO is prepared for “at a minimum, huge volatility.” His forecast on cryptos aside, the warning is a call to action. There is still time to hedge portfolios and establish a plan for the coming storm. Volatility is a nightmare for passive inventors, but it creates a paradise of opportunities for nimble disciplined traders with their fingers on the pulse of markets. Bonds are sitting near the lows Quantitative tightening not only removes the put under the bond market that had supported government-issued fixed income instruments since early 2020, but it also puts downward pressure on bonds and upward pressure on interest rates further out along the yield curve. The long-term chart of the US 30-Year Treasury bond futures highlights the decline to the most recent low of 134-30, declining below the October 2018 136-16 low, and falling to the lowest level since July 2014. At the 135-20 level on June 10, the bonds are sitting close to an eight-year low, with the next technical support level at the December 2013 127-23 low. The Fed’s FOMC meets on June 14 and 15 The market expects the US Federal Reserve to increase the Fed Funds Rate by 50 basis points this week at the June meeting. The move will put the short-term rate at the 1.25% to 1.50% level. The Fed remains far behind the inflationary curve, with CPI and PPI data at an over four-decade high and coming in hotter each past month. While the central bank determines the short-term rate, the bond market has been screaming for the Fed to catch up, warning that inflationary pressures were mounting. The bottom fell out of the long bond futures in 2022 as the Fed began to tighten credit. However, the Fed’s economists will only put the short-term rate at 1.50%, with inflation running at many times that level. A 75 basis move to 1.75% would shock the market, which is not a path the Central Bank wants to follow. Higher rates are on the horizon The Fed may have awakened, realizing it must use monetary policy tools to address inflation, but the central bank remains groggy and slow to adjust rates to levels that would choke off rising prices. The economists do not have an easy job as they face supply-side economic problems created by the war in Ukraine. Had they been more agile in 2021 and nipped the rising inflation in the bud with a series of rate hikes, the US Fed would be better positioned to address what has become a no-win situation. The war has caused energy and food prices to soar with no central bank tools to manage the situation. Last week, gasoline rose to a new high, crude oil was over $120 per barrel, natural gas was over $9.65 per MMBtu, and grain prices remained at elevated levels. Rate hikes and lower bond prices are not likely to cause prices to fall as US energy policy, sanctions on Russia, and Russian retaliation are supply-side issues that leave the central bank with few answers. Higher food and energy prices will keep the inflationary spiral going and will continue to push bond prices lower. Expect lots of volatility in markets The US and the world face an unprecedented period that began with the 2020 global pandemic. Artificially low interest rates and the government stimulus that addressed the pandemic were inflationary seeds. The pandemic-inspired supply chain bottlenecks exacerbated the inflationary pressures. A shift in US energy policy increased OPEC and Russia’s pricing power in traditional energy markets. Meanwhile, the war in Ukraine has turbocharged the economic condition, making a solution challenging for the central bank. The current US Treasury Secretary, and former Fed Chair, Janet Yellen, once said that monetary policy works together with the government’s fiscal policies. In the current environment, fiscal policy and the geopolitical landscape have become the most significant factors for rising inflation. Jamie Dimon is worried, and the head of the leading US financial institution is battening down the hatches on his balance sheet for a storm. Even though he was mistaken about cryptos, we should heed his warning and hope he is wrong. Markets reflect the economic and geopolitical landscapes, which are highly uncertain in June 2022. Hedge those portfolios, and make sure you develop a plan for any risk positions. Expect the unexpected because 2022 is anything but a typical year in markets across all asset classes. Fasten your seatbelts for what could be a wild and turbulent ride over the coming months. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
CBOT:ZB1!Education
by Andy_Hecht
12
Market tops after yield compressionThis is a chart showing treasury yields, color coded by duration (yellow is the 1 year, dark blue is the 30 year), with the $SPX in the lower frame. Each red line shows a major market top and how they relate to yield compression followed by inversion. It looks to me like shorter term yields always rise vs longer term yields quite awhile before bear markets occur (in the past its been months or years before). It also looks like short term yields are rising abnormally quickly this time. Yield inversion is a huge red flag that a bear market is coming and I wonder how long we have this time before that happens.
FRED:DGS5
by KingOf2Things
10-Year Treasury Yield All Set for Summer 2019 Highs?Following another strong US CPI report, the 10-year Treasury yield surged above 2%, further pushing above peaks from late 2019 (1.9073 - 1.9718). That has exposed peaks from summer 2019 as key resistance (2.1779 - 2.1431). A bullish Golden Cross remains in play between the 20- and 50-day Simple Moving Averages. Keep a close eye on RSI, negative divergence shows fading upside momentum. A turn lower may see the SMAs act as support, maintaining the dominant upside focus. TVC:US10Y
TVC:US10Y
by QM_Dubrovsky
THE 40 YEAR BEAR MARKET IN 10 YEAR TREASURY NOTE INTEREST RATEThe attached chart shows 40 years of declining 10 year rates. As we all know, that rate is the basis for mortgage rates and just about everything else. During that half cycle the housing market boomed, the stock market boomed and generally speaking, corporations and individuals prospered. But that trend has ended. Thursday I would have said that rates would either remain low for an indefinite period while inflation soared or rates would be raised to quell inflation. But Friday Central Banks around the world announced tightening. The party is over! It is time to batten down the hatches, lock in long term profits on stocks, rentals and any other investments that correlate inversely with interest rates. Obviously the major players saw this coming and started bailing at the first of2022. Now us little fish must do what we can to avoid losing the wealth we have. As an aside, it was announced last year that Bill Gates was diversifying into farm land. Obviously that anticipates food shortages and inflation............. I will post more on this once the picture becomes clearer. midnitepoet
TVC:TNXShort
by midnitepoet
Bonds Gain as Stocks Sell OffBonds have picked up as stocks have sold off due to increased risk sentiment. We have edged up to 131'02, the technical level we discussed yesterday. The Kovach OBV has picked up significantly, but is starting to level off as ZN finds value in the low 131 handle. We are gradually trekking up in a zig zag pattern, but will face resistance at the next technical level at 131'12. This is a relative high for December which will be difficult to break as we enter the holiday week for Christmas next week. We should have support from below at 130'26 and 130'19.
CBOT:ZN1!
by quantguy
2
Inverse Head and Shoulders in Bonds??Bonds have seen a bit of a relief rally as we predicted yesterday. They hit the exact target we identified, 130'00, before settling near support at 129'26. We anticipate a quiet market as we go into the US hoiday for Thanksgiving. The Kovach OBV is still solidly bearish, suggesting that this rally may be just a relief rally. That being said, we do have an inverse head and shoulders pattern forming with a neckline at 130'00. If we break out further, we could easily hit 130'07, or 130'19. If the selloff continues, our next target is 129'11.
CBOT:ZN1!
by quantguy
TYX 30 Year Bond YieldWith Fed Powell having his big speech last week, I wanted to take a look at the TYX which is the 30 year treasury bond yield. Although he noted that they won't necessarily hike interest rates in the short term, he did say that he would consider doing so Q2 and above depending on job growth and GDP growth. There was also a clear warning that the Fed would pullback on some of the bond purchasing two times in November and December going into 2022. The TYX normally responds to this in a bullish manner. With the CPI reports being the highest since 1990, consumers are taking hits with having to spend more money for the same products. In the most recent months, this hasn't really mattered to the average consumer. However, if the CPI reports continue to come in higher than forecasted, I'm sure that those same consumers would start pulling back their expenditures. Now taking a look at the chart, my focus is on the Daily TF where there seems to be a bullish flag forming and or an Eve and Eve double bottom that could be in the midst of forming if consolidation persists within the next 3 months. The Mac D indicator seems as if it needs to retrace the previous high and it has already surpassed the 38% retracement level and am looking for a bullish move out of the flag to reach the 61.80% retracement. If this happens and we cross above the 200 ema (already happening on the 15 min) we could be back in the 2's at some point in the near future. What do you think? Like, follow, agree, disagree! Not advice! Just an Idea!
TVC:TYXLong
by Redimere_91
Change Your Mindset to Profit from the Upcoming Market DipAt this stage of the game, there are genuinely too many things to list that would back up the idea of an impending drop in the market. Instead of eating, sleeping breathing FUD and living in the fear based, scarcity mindset and focusing on how “the market is going to crash” I encourage everyone to see the clearance buffet we are about to have in front of us. We are about to have an opportunity for generational wealth transfer style profit making. Many missed the ultimate BTFD moment (COVID) but I believe we’re in for a mini round 2. The bigger the dip, the bigger the rip and I’m being a bit facetious here but I mean it. If you’re gonna rob a bank, are you gonna plan how to do it ahead of time, or just walk in? You know the phrase get away with murder? Well, the people who get away with it are the people who plan it and not the ones who do it impulsively in the moment! So get ready for the murder of the market that brings a traditional Christmas pump. If you're uncomfortable trading chop, spend this time: 1. Charting High Time Frame on Fundamentally Sound Tickers 2. Setting Alerts at Buy Zones 3. Waiting Spend this time making all of the money you can OUTSIDE of the market so when opportunity presents itself (massive fear and a drop) to be bought you have the opportunity to do so.
AMEX:SPYShort
by amizzle
21
Bonds are Ground Zero for Market's Battle with Fed and TreasuryThe bond market is the primary capital-raising marketplace. Market participants issue new debt or buy and sell debt securities in the secondary market. Bonds, notes, and bills are tools for public and private expenditures. Since the US is the world’s leading economy, the market for US government bonds is massive. The long-bond or 30-Year Treasury is a barometer for US interest rates. The long bond has been trending lower since August 2020- The latest CPI data confirms the trend Last August, the Fed made a subtle but significant shift Monetary and fiscal policy remains accommodative Conflicting signals for the bond market cause a bounce Jackson hole could bring another shift While the US central bank, the Federal Reserve, sets short-term interest rates via the Fed Funds rate, buyers and sellers establish rates further out along the yield curve. Following the 2008 global financial crisis and the 2020 worldwide pandemic, the Fed initiated a quantitative easing or QE program. QE is a tool to stimulate the economy via debt purchases that put a cap on rates further out along the yield curve. Over the past year, the central bank has purchased $120 billion in government debt securities each month. The bond market has been dropping over the past year, despite the Fed purchases. Imagine where the long bond futures would be if the Fed were not buying each month. The bond market is taking on the Fed as it signals inflationary pressures are rising. The Fed may call inflation “transitory,” but this week, the latest consumer price index data from May was a warning sign that the bond market is correct, and the Fed is wrong. The long bond has been trending lower since August 2020- The latest CPI data confirms the trend The US 30-Year Treasury bond futures recently rolled from the June to the September contract. The weekly chart of the long bond futures highlights the drop from 183-06 during the week of August 3, 2020, to the low of 153-29 in late March, early April 2021. While the nearby contract recovered over April, May, and early June, at the 161 level, it remains a lot closer to the low than last August’s peak level. Bonds seem to have found a floor at just below the 154 level. Weekly price momentum and relative strength indicators have been trending higher since reaching oversold conditions in late March. Open interest, the total number of open long and short positions in the long-bond futures, moved from 1.106 million contracts when the bonds last August to the 1.207 level at the end of last week. Increasing open interest when the price declines is typically a technical validation of a bearish trend in a futures market. Weekly historical volatility at the 4.37% level as of June 11 was close to the lowest level in years. While the long bond recovered from the lows, last week’s CPI data was bearish for the debt market. The 5% increase and 3.8% rise in core inflation was the highest level in nearly three decades. The Fed continues to call inflationary pressures “transitory” and has concentrated on its “fell employment mandate.” The trend in the bond market, raw material prices, the stock market, real estate, and most other asset classes points to rising inflation. Employment data could be the transitory outlier as low-wage earners continue to benefit from government stimulus and expanded benefits, which results in higher earnings from staying at home rather than returning to work. The latest CPI data confirms rising inflationary pressures. Last August, the Fed made a subtle but significant shift Last August, the US central bank told markets it adjusted its 2% inflation target to an average of 2%. The Fed has been encouraging inflation with low interest rates and quantitative easing. It is unclear what period the Fed is calculating the average rate, which makes a substantial difference. Inflation had been well below the target rate for years before it began to rise in recent months. Economics is a social science. The models and formulas that the Fed watches and depends on are only as good as the variables, which are the inputs for the decision-making process. Individuals and companies are experiencing dramatic price increases and asset inflation. The Fed is taking a wait-and-see approach as it continues on the current course. The central bank was hoping inflation would rise last August. As the old saying goes, be careful what you wish for, lest it comes true. Monetary and fiscal policy remains accommodative The tidal wave of central bank liquidity created by low short-term interest rates is unprecedented. Quantitative easing to the tune of $120 billion per month in debt security purchases is an attempt to keep interest rates further out along the yield curve at low levels to stimulate borrowing and spending and inhibit saving. With the long-bond futures slipping from over 180 to the 161 level at the end of last week, QE may have only softened the inflationary blow over the past months. The Fed has a partner in crime, the US Treasury, and the Washington establishment. If central bank liquidity is at an all-time high, fiscal stimulus is off the hook. Stimulus in the trillions has only exacerbated rising inflation. The price tag for the monetary and fiscal accommodation since the pandemic began is growing by leaps and bounds as it eats away at money’s purchasing power, the classic definition of inflation. COVID-19 may be fading into the rearview mirror, but its legacy will remain an inflationary danger for many years to come. Conflicting signals for the bond market cause a bounce The Fed will meet this week for its June FOMC meeting. So far, the only thing the central bank has said is that it is “not thinking about thinking about” tapering the QE program or increasing the Fed Funds rate to address rising inflationary pressures. The unemployment rate at 5.8% and core inflation at the highest level in decades are conflicting data for the central bank. Meanwhile, the administration and Congress keep spending with some politicians demanding even more stimulus and programs. The bond market found a bottom in late March and has been recovering. The pattern in the September long-bond futures contract illustrates a series of higher lows and higher highs since it traded at 152-16 on March 18, 2021. The latest high came last week at 159-29. The bond market did not sell off after the latest CPI data, but it did rally on the weak employment numbers. The bond market may have gotten ahead of itself in March when it fell to the lows. Speculative shorts pushing the long bond futures lower appear to have run out of patience and covered risk positions. However, if the Fed remains on its same accommodative path with help from the government’s tsunami of fiscal stimulus, the rally in bonds is likely to run out of steam sooner rather than later. Jackson hole could bring another shift The Fed Governors, economists, and others gather in Jackson Hole, Wyoming, each August. Over the past years, policy shifts have often created fanfare during the event. We could see the Fed begin to guide that QE tapering is on the horizon later this year or early 2022. Economic conditions and rising asset inflation make a shift towards tightening monetary policy logical as vaccines have created herd immunity to the virus, and conditions have not only improved but are robust. However, if the central bank decides that it needs to keep the accommodative policy in place because of the unemployment rate, it will only pour more fuel on an already burning inflationary fire. Expect lots of volatility in the bond market over the coming weeks and months. Increased price variance creates a nightmare for passive investors, but it is a paradise for nimble traders with their fingers on the pulse of moving markets. The bond market could be the Garden of Eden for traders over the second half of 2021 and beyond. The bond market is ground zero for the free market’s battle with the Fed and Treasury. Since August 2020, the bond market has been fighting the Fed and winning. Sign up for the free Monday Night Strategy Call using the link below! Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
CBOT:ZB1!
by Andy_Hecht
7
The Dollar INFLATION Is HERE? Let's Find Out! Hello,Traders! The fears of inflation are now the reality, with the official FED number showing that inflation went from 1.6% in 2020 to 4.2% in April 2021, which means that the situation "on the ground" is even worse. Even just by looking at the charts of lumber, copper, and other commodities, while finding out that all the cars in your local dealership are sold out a year ahead, and the car prices are up, with the FED and the Treasury competing for the number of zeros on their official operating papers, the thoughts of «shortages» and «inflation» are naturally creeping into your head,followed by the question of "how it all came to it?" And while the Covid-19 and the lockdowns are the obvious culprits, the details are interesting. So let's dive into the mess of the Covid-19 consequences to find out. Generally, Inflation can be caused by any of the two components: excess money supply, directed towards consumption, as opposed to investments, or goods supply shortage, with the unchanged money supply. In 2021 we seem to have both, but the details are quite peculiar. Let's deal with the excess money supply bit first, as it is kinda obvious: In march of 2020, the FED added 2.3 Trillion dollars to the direct asset purchases program, while expanding indirect liquidity by relaxing bank reserves standards, and relieving other regulations of the money markets to facilitate lending and prevent broad money contraction. Most of that money, however, went into the financial assets, inflating the asset prices, which can be seen by looking at the prices of Gold, Bitcoin, S&P500, and other key benchmarks. U.S. Fiscal Policy bit, however,was more directly relevant to the consumer goods inflation. Throughout March and April 2020, the U.S. government passed three main relief packages and one supplemental package, totaling nearly $2.8 trillion. After the passage of the supplementary package in April, nicknamed "stimulus phase 3.5," there was no substantial action on COVID-19 stimulus or relief from Congress for several months as each party proposed their own stimulus package. Then, after the election of President Biden in November, a $900 billion stimulus bill was passed in December 2020. Another $1.9 trillion American Rescue Plan, was signed into law by President Biden on March 11, 2021. 3 Trillion Dollars was actually spent so far, the remainder being available to congress for allocation. Most of that money was spent, not invested, and came from borrowing, not taxes, which, would have added to inflation even without the supply shock. The supply side of the equation, however, looks much more complicated, but we will dive into that in the next article, tomorrow! If you want to read the most interesting piece, please like comment, and subscribe!
by TopTradingSignals
27
Interest Rates Topping?/TLT Finally Making a Bottom?/Looks like the craze over high interest rates is coming to a congestion zone. If you go back to 2019, there were hella buyers at $135. I think we are getting to the point where such high interest rates, while the stock market is still skyrocketing, and yet the global economy has not recovered; or said better, investors are in denial. When interest rates are low, and the stock market is high - that's inflationary. When interest rates are high, and the stock market is high (making ATHs), and yet we are in the eye of a deleveraging, currency crisis - I can't help but anticipate a top on both rates and the stock market. At some point, the Fed will have to get people to buy bonds, or they'll do it themselves, to push down the long-end, and I think the stock market will get cold feet, and start selling off. That being said, there could be something more nefarious happening that we just aren't taking into account, which is the Fed just continuing the "we need to push inflation up" narrative until they are blue in the face (idk how they aren't already), and people continue to take on debt and play the euphoric stock market game until financials finally bite people in the ass. The fed knows interest rates going higher, in a crisis like this, is a ticking time bomb, and at some point, will have to give in, but that's the point - they're going to let the system panic and then they'll come in, once again, and lend a hand. What worries me, though, is why would anyone give a shit what they have to say at that point? No one can get loans when banks don't want to lend - e.g. people are in forebearance, people's businesses are closing or on the brink, people are malignantly unemployed in higher and higher numbers - fred.stlouisfed.org We're getting to the point where the risky money has to go somewhere, and it's either bonds, savings accounts, consumer debt, or stocks, and the fed will make damn sure that it's stocks or consumer debt. But what happens when people are exhausted and don't want to take on debt - or quite frankly just can't? Or when the stock market isn't going any higher and the support zones for every major index is thousands of points down? The money goes into savings, banks go insolvent due to lesser and lesser risk-on sentiment, and they dive into treasurys to find a safe haven for liquidity, and boom - you've got negative interest rates. I'm fairly certain this will be the case this year, and the Fed will, again, be forced to ramp up the emergency SPVs like we've never seen before, and virtually breaking every rule in the book so that banks stay solvent, and people continue to take on loans.
TVC:US10YShort
by MoneybagsMcGee
3