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Yield Curve Reinverts on Easing Rate Cut ExpectationsFed sets the rates. Rates guide treasury yields. Fed remains data dependent. Incoming data creates nuanced shifts in yield spreads. The September jobs report revealed 254,000 jobs added, significantly exceeding expectations of 147,000, with August figures also revised upward. This strong report, along with the JOLTS data from earlier in the week, indicates that the job market remains strong and not as weak as previously anticipated. Despite the strong jobs data, the yield curve has inverted once again. While Mint Finance has previously highlighted that recession risks can lead to the yield curve inverting, that is not the only reason. This time around, the inversion is being driven by delay in rate cut expectations. CME’s Yield Futures enables investors to deftly express their views on the path of rates ahead. JOB MARKET SHOWS MIXED SIGNS OF RECOVERY The latest JOLTS figures showed U.S. job openings rising from 7.711 million to 8.090 million in August, with the previous month's numbers revised up by 38,000. Although job openings remain near a two-year low, the increase is a positive sign. Rise in job openings was primarily due to increase in construction jobs (+138k), which are often seasonal, and government jobs (+103k). However, the overall report paints a mixed picture. Hiring fell by 99k from the previous month, and while total separations dropped by 317,000, the largest contributor was a 159,000 contraction in quits. With fewer hires and a large drop in quits, the data suggests the job market is not particularly strong, as workers hesitate to leave their current positions with fewer being hired into new roles. The Non-Farm Payrolls (NFP) showed 254,000 jobs added in September, with health care, social assistance, and leisure and hospitality sectors leading the gains. As a result of these additions, the unemployment rate eased to 4.1%. Hourly earnings grew by 4% YoY, with the previous month's figures revised upward to 3.9%. RATE CUT EXPECTATIONS TEMPER Further rate cuts are still expected, but the anticipated pace has slowed. Before the PCE inflation report on September 27, CME FedWatch indicated a cumulative 75 basis point reduction over the next two FOMC meetings in November and December. Source: CME FedWatch CME FedWatch tool also indicated a high probability of 100 basis-point cuts last month. However, after the encouraging PCE report, which showed inflation easing to 2.2%—its lowest level since 2021 and close to the Fed's target—the probability of a cumulative 50 basis-point cut has steadily risen. Following the jobs report last week, the probability of cumulative 50 basis-points cuts surged to 80%. The trend suggests that market participants are increasingly expecting a soft landing, with inflation easing and the job market remaining strong. A soft landing reduces the urgency for aggressive rate cuts, giving the Fed more flexibility to monitor the effects of previous rate hikes and lower rates more gradually. Source: CME FedWatch Crucially, Fed Chair Jerome Powell has suggested a similar outlook for rate trajectory. While speaking at the National Association for Business Economics, he suggested that if the economy continues on its current trajectory, he expects two more smaller rate cuts this year, or cumulative rate cuts of 50 basis points at the next two meetings. FOMC projections also signalled a similar rate outlook for 2024 as signalled by the dot plot below. Source: FOMC YIELD CURVE RE-INVERTS Bond yields have increased sharply to their highest level since August on tempered rate cut expectations. Crucially, the increase has been much sharper for the 2-year yields indicating near-term expectations of elevated rates for longer. The result has been a re-inversion in the yield spread with 2-year & 10-year treasury yields now on par. Notably, the yield futures spread has declined more sharply than the treasury yield spread. HYPOTHETICAL TRADE SETUP Recent economic data points to rising likelihood of a soft landing. Expectations of rapid rate cuts have tempered accordingly. While rates are expected to continue declining, the pace is expected to slow with a cumulative 50 basis points (“bps”) of further cuts in 2024 likely. As rates remain elevated for an extended period, the yield curve has begun to invert again. With current inflation easing, the inflation premium on long-term treasuries has diminished. FOMC projections suggest a gradual path toward rate normalization, suggesting a potential near-term yield curve inversion before it eventually normalizes. Investors can express views on this outlook through CME yield futures. Further, the yield futures spread is trading at a (~5bps) premium to the treasury yield spread, as the futures contracts approaches expiry on October 31, the futures spread will converge towards the treasury yield spread which further benefits the short position. CME Yield Futures are quoted directly in yield with a 1 basis point (“bp”) change representing USD 10 in one lot of Yield Future contract. This simplifies spread calculations with a 1 bp change in spread representing profit & loss of USD 10. The individual margin requirements for 2Y and 10Y Yield futures are USD 330 and USD 320, respectively. However, with CME’s 50% margin offset for the spread, the required margin drops to USD 325 as of October 8, making this trade even more compelling. A hypothetical trade setup comprising of long 2Y yield October futures and short 10Y yield October futures with reward to risk ratio of 1.5x is described below. Entry: 13.5 bps Target: -1.5 bps Stop Loss: 23.5 bps Profit at Target: USD 150 (15 bps x 10) Loss at Stop: USD 100 (10 bps x 10) Reward/Risk: 1.5x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/cme . DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CBOT_MINI:10Y1!Short
by mintdotfinance
Chart Analysis of 10-Year U.S. Treasury Bond Yields Based on current chart patterns and Elliott Wave Theory, it appears we are in Wave 4 of a higher-degree cycle for the 10-year U.S. Treasury bond yields. Wave 4 is typically a corrective phase following a strong trending Wave 3, suggesting that this phase may involve consolidation or retracement. Key Levels to Watch: 38% Retracement (Lower Orange Line) : If yields bottom near this retracement level, it may indicate a potential support zone where Wave 4 could complete its correction. 61% Retracement (Upper Orange Line) : Should the yields find support at the 38% level, they might subsequently target the 61% retracement level of Wave 3, suggesting a potential upward move. Market Implications : If the bond yields continue to rise and reach these retracement levels, we could witness a significant bearish trend in the broader market. However, it's crucial to recognize that market conditions are dynamic and can affect these projections. Disclaimer : This analysis is based on the current technical chart patterns and Elliott Wave Theory. Market conditions are subject to change, and unforeseen factors can impact outcomes. Therefore, it's essential to stay informed and consult with a financial advisor before making investment decisions. Regards
TVC:US10Y
by imkhushal
1
US10Y going lower with the Fed having no choice but to cut.Almost 10 months ago (November 7 2023, see chart below), we made a bold (for the time being) call on the U.S. Government Bonds 10YR Yield (US10Y), as against the prevailing market sentiment we gave a sell signal, right after what turned out to be a top: Today's revisit to this pattern shows that the 1M RSI Lower Highs have already started to form a Bearish Reversal on the US10Y price, similar to 2006 - 2007. We are expecting to hit the 0.382 Fibonacci retracement level at 2.100% as its first Target, on the Fed's first wave of rate cutting and gradually hit the lower Fib targets as the rates stabilize. For better illustration we have plotted also the U.S. Interest Rate (red trend-line), where you can clearly see that the fractal we compare to today, is right before cuts started in August 2007. Also it is a natural consequence of US10Y falling when rate cut cycles start, evident also in June 2019, December 2000, May 1995, May 1989 September 1984, May 1981 etc. ------------------------------------------------------------------------------- ** Please LIKE 👍, FOLLOW ✅, 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 us, keep the content here free and allow the idea to reach as many people as possible. ** ------------------------------------------------------------------------------- 💸💸💸💸💸💸 👇 👇 👇 👇 👇 👇
TVC:US10YShort
by TradingShot
1
GOVT ETF: Bullish Reversal on the Horizon?The GOVT ETF, representing U.S. Treasury Bonds, shows signs of a potential bullish reversal, according to our proprietary QuantEdge Momentum System. Key Indicators: Z-Score: The Z-Score has surged to 1.60, signaling an overextension to the downside in the past months. This indicates that the recent downward momentum might be exhausted, leading to a possible trend reversal. Z-Score of RSI: The Z-Score of RSI at 1.72 shows a significant bullish momentum shift. This suggests that the asset might be gaining strength, with buyers stepping in to push prices higher. The crossing above 0 confirms that bullish sentiment is currently prevailing. Cumulative Volume Delta (CVD): The CVD indicator reflects a strong buying pressure, as demonstrated by the marked shift from deep negative territory (-451,481,504) towards a less pronounced negative reading. This shift suggests that the selling pressure has weakened, and buyers are beginning to dominate the market. Price Action: The price has broken above the green momentum cloud, signaling a potential shift from a downtrend to an uptrend. Given the alignment of other indicators, this could be the beginning of a bullish phase for GOVT. Projection: Over the next quarter, GOVT is likely to experience a bullish correction, driven by strong buying momentum. The ETF could target resistance levels in the $25.00-$26.00 range if the current momentum continues. The Z-Score and RSI suggest that the upside could be substantial as the ETF looks to recover from recent losses. However, caution is warranted if the Z-Score or RSI starts to diverge negatively, as it could indicate the potential for a correction or consolidation before resuming the uptrend. Monitoring these indicators will be crucial to confirm the strength of the reversal. Based on the proprietary QuantEdge Momentum System, GOVT appears poised for a bullish quarter. Investors looking to capitalize on U.S. Treasury Bonds might find this an opportune time to consider GOVT as a potential buy.
AMEX:GOVTLong
by LordGiorgioCapital
10-Year T-Note vs. 10-Year Yield Futures: Which One To Trade?Introduction: The 10-Year T-Note Futures and 10-Year Yield Futures are two prominent instruments in the financial markets, offering traders unique opportunities to capitalize on interest rate movements. This video compares these two products, focusing on their key characteristics, liquidity, and the differences in point and tick values, ultimately helping you decide which one to trade. Key Characteristics: 10-Year T-Note Futures represent a contract based on the value of U.S. Treasury notes with a 10-year maturity, while 10-Year Yield Futures are based on the yield of these notes. The T-Note Futures contract size is $100,000, while the 10-Year Yield Futures contract size is based on $1,000 per index point, reflecting a $10 DV01 (dollar value of a one basis point move). Liquidity Comparison: Both 10-Year T-Note Futures and 10-Year Yield Futures are highly liquid, with substantial daily trading volumes and open interest. This high liquidity ensures tight spreads and efficient trade execution, providing traders with confidence in entering and exiting positions in both markets. Point and Tick Values: Understanding the point and tick values is crucial for effective trading. For 10-Year T-Note Futures, each tick is 1/32nd of a point, worth $31.25 per contract. The 10-Year Yield Futures have a tick value of 0.001 percent, worth $1.00 per contract. These values influence trading costs and profit potential differently and are essential for precise strategy formulation. Margin Information: The initial margin requirement for 10-Year T-Note Futures typically ranges around $1,500 per contract, while the maintenance margin is slightly lower. For 10-Year Yield Futures, the initial margin is approximately $500 per contract, reflecting its lower notional value and DV01. Maintenance margins for yield futures are also marginally lower, providing traders with flexible capital management options. Trade Execution: We demonstrate planning and placing a bracket order for both products. Using TradingView charts, we set up entry and exit points, showcasing how the different tick values and liquidity levels impact trade execution and potential outcomes. Risk Management: Effective risk management is vital when trading futures. Utilizing stop-loss orders and hedging techniques can mitigate potential losses. Avoiding undefined risk exposure and ensuring precise entries and exits help maintain a balanced risk-reward ratio, which is essential for long-term trading success. Conclusion: Both 10-Year T-Note Futures and 10-Year Yield Futures offer unique advantages. The choice depends on your trading strategy, risk tolerance, and market outlook. Watch the full video for a detailed analysis and insights on leveraging these products in your trading endeavors. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Editors' picks
CBOT_MINI:10Y1!Education
by traddictiv
4
10yr Treasury Yields Consolidate at Key 4.32% LevelThe world’s most important market, the 10yr US Treasury, is trading directly at a critical level. Going back years, the 4.32% level has served as reliable support/resistance, and today’s drop after peeking above that level yesterday has only emphasized the importance of that key level. At the same time, the 10yr Treasury yield has put in a series of lower highs and higher lows dating back to Q4 of last year, creating a symmetrical triangle pattern that could lead to an outbreak of volatility in the coming weeks. A bullish breakout above 4.60% would hint at a possible retest of 5.00% (and likely weigh on risk assets like stocks and higher-yielding currencies), whereas a bearish breakdown in yields would open the door for a drop toward the December lows near 3.80%. -MW
TVC:US10Y
by FOREXcom
TLT Is Coming Into Key Support Within A Corrective DeclineTreasury bond TLT has been trading lower since the start of 2024, but after an impulsive rally at the end of 2023, we believe it's just making and finishing a deep A-B-C corrective decline. It's actually now coming into key strong support zone at 61,8% - 78,6% Fibo. retracement and channel support line, from where we should be aware of bounce, recovery and continuation higher back to 2024 highs. Just keep in mind that bullish confirmation is only above channel resistance line near 92.00 region, while invalidation level remains at 82.45.
NASDAQ:TLTLong
by ew-forecast
1
Long 10Y, Short 2Y on Yield Curve NormalisationWorld's most important and the largest financial market is the US Treasury. Annual issuance of U.S. Treasuries has exploded. A record USD 23 trillion of treasuries were issued in 2023. This market is experiencing gradual but notable shifts due to the Federal Reserve (Fed) recent tapering of quantitative tightening and the Treasury buyback. Collective impact has led to demand divergence across different maturities. The yield curve starting to normalize once more. Economic outlook impacts the yield curve. Not only that, the Fed’s quantitative tightening (“QT”) campaign also has an enormous influence. At its most recent FOMC meeting, Chair Jerome Powell stated that the Fed would start to slow its balance sheet runoff. The runoff results in supply contraction enabling greater demand for long-term treasuries and a subsequent yield curve normalization. Runoff refers to the reduction in Fed’s balance sheet as they opt to let their treasury holdings mature without renewing them. This activity leads to a supply contraction. RECENT HAWKISH FED MEETING CAME WITH A CAVEAT Since 2022, the Fed has been engaged in a QT campaign. Raising rates is its primary tool. Balance Sheet reduction is an additional strategy to manage monetary environment. The Fed first announced that it would start to reduce holdings of US treasuries at a fixed pace at its May 2022 meeting. The pace of reduction accelerated as Fed stepped up QT. Treasury runoff has continued at a fixed pace since then. At the April FOMC meeting, Fed announced its decision to slowdown the runoff. In other words, Fed would start to let treasuries to mature at a slower pace. Starting from the first of June, the Fed will decrease the maximum amount of treasuries that can mature without being replaced from USD 60 billion per month to USD 25 billion. Fed’s outlook on rate cuts was hawkish. But its resolve to taper runoff is dovish signalling the Fed’s end of QT campaign through balance sheet reduction. Treasury runoff tapering impact will be noticed additional liquidity before rate cuts arrive. HOLDINGS & RUN-OFF IS AIMED AT LONG-TERM TREASURIES Fed’s QT via treasury holdings is implemented through the non-renewal of existing holdings. Crucially, the impact of letting treasuries mature is more pronounced on long-term treasuries than short term ones. As short-term treasuries mature more often, the impact of this run-off on near-term treasury demand is limited. In contrast, the impact on long-dated expiries is more pronounced. Analysing the cumulative run-off since May 2022, the largest impact on long-term treasuries has been on 5 to 10 years category which consists primarily of 10-Year notes. This run-off has been particularly high over the last few months. On the contrary, the holdings of 10+ year treasuries have increased. Source – Federal Reserve TAPERING RUNOFF SUGGESTS IMPROVEMENT IN LONG-TERM TREASURY DEMAND Impact on benchmark 10-Year treasuries will be most pronounced as the Fed moves to slow the pace of its runoff. Longer maturities have lagged near-term ones at recent auctions. It was most apparent at the latest auctions. The 10-Year treasury auction raised USD 42B, that is far higher than the average over the last twelve auctions at USD 31B. While the bid-to-cover was higher than the previous auction in April, it was below the average over the last twelve auctions. Indirect bidding was below average at 65.5%. Overall, this suggests an unimpressive result. In sharp contrast, 3-Year treasury auction showed strong demand. It raised USD 58B, the highest since 2021. Bid-to-cover was higher than the last auction. Non-dealer bidding was also above average at 85.1% (81.7% average). Similarly, the Treasury 5-Year auction raised USD 70B with an above average non-dealer bidding. Both 3-Year and 5-Year auction results were much stronger. As observed through the CME TreasuryWatch Tool , the demand for 2-year treasuries has been noticeably higher, as suggested by the bid-to-cover ratios, compared to 10-year and 30-year treasuries. Source – CME TreasuryWatch FED’S TAPERING TO FUEL 10Y SPREAD TO OUTPERFORM 5Y SPREAD Yield curve is normalizing once more following the decline in the 10Y-2Y spread at the start of 2024. This trend is likely to continue as yields for longer dated maturities rise higher than near-term maturities. Mint Finance highlighted previously that the 5Y-2Y spread is likely to outperform the 10Y-2Y spread. However, as Fed starts to taper its balance sheet run-off, the impact is likely to be felt strongest at the 10Y maturity allowing demand for these treasuries to rise once more. HYPOTHETICAL TRADE SETUP Fed’s balance sheet runoff slowdown and the underperformance of the 10Y-2Y spread relative to the 5Y-2Y spread, the 10Y-2Y spread has potential outperform in the near term as the yield curve turns to normalcy. To harness gains from this normalization, investors can opt to execute a spread trade consisting of Yield futures. CME Yield futures are quoted directly in yield with a one basis point change in the yield representing a P&L of USD 10. As yield futures across various maturities represent the same notional, spread P&L calculations are equally intuitive with a one basis point change in the spread between two separate maturities also adding up to a P&L of USD 10. • Entry: -32.3 basis points • Target: -28.3 basis points • Stop Loss: -35.3 basis points • Profit at Target: USD 400 • Loss at Stop: USD 300 • Reward to Risk: 1.3x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CBOT_MINI:10Y1!Long
by mintdotfinance
#Treasury Yields are they going to over 7% !!!Interest rate bull and bear markets can run for many years before they change direction. Currently the yield curve is the lowest it has ever been and is still declining. The long term charts above are strongly suggesting that the bear market in interest rates ended during the pandemic crash low in 2020 after 39 years of decline. This will have major consequences if the #Economy is unable to whether a higher cost of capital and Gives big money managers to park their money in a risk free asset and earn #yield treasury notes are any #bond with a less than 2 year maturation.
TVC:TNXLong
by BallaJi
TLT Treasuries Long breaks down under VWAP SHORTTLT on a 120 minute chart has continued its trend down since early December after a suddent uptrend in November lasting for a two month until the end of 2023. Inflation data is kicking the rate cut down the road of time. Price has now fallen under the VWAP and all of the EMA lines including the EMA20. Relative strength trending correlates with price . I conclude, TLT continues to be set up SHORT or alternatively TBT LONG . I will take short trades at weekly highs on a 30-60 minute chart until signs of a reversal are seen on the chart.
NASDAQ:TLTShort
by AwesomeAvani
TLT- Are rate cuts postponed? LONGTLT has been in a broadening wedge and formed a falling wedge within the larger pattern. Price bounced off the lower supoort trendline in the mid-morning of trading then rising to break out of the falling wedge. I see this as an opportunity to take a long trade in TLT and close out a TBT position at the same time. This reversal may be due to the value of existing bonds with the implications of a rate cut postponed beyond June. The faster RSI line has recovered to cross the 50 level lending further support to this long trade.
NASDAQ:TLTLong
by AwesomeAvani
US10Y Expect to see a new High.The U.S. Government Bonds 10 YR Yield has turned bullish on its 1D technical outlook (RSI = 60.193, MACD = 0.003, ADX = 38.653) as it crossed above the 1D MA200 again, with the 1D MA50 following right under it, with the two on an emerging 1D Golden Cross. We have anticipated that rebound from the HL of the Channel Up on our previous idea and our medium-term target (TP = 4.600%) is intact. If the 0.786 Fibonacci level breaks, we will buy after the first 1D MA50 pullback. The 1D RSI is also posting a similar early rally sequence to April-May 2023 and December 2022-January 2023. See how our prior idea has worked out: ## If you like our free content follow our profile to get more daily ideas. ## ## Comments and likes are greatly appreciated. ##
TVC:US10YLong
by InvestingScope
TLT Long at VWAP Bounce T- Bills 20 yearsTLT on the 15 minute chart in the past two trading sessions consolidated and then fell into a pullback to the support of the anchored mean VWAP. Relative volatility spiked and has now contracted. I see this as a good entry to add to my TLT position having sold a good portion of it three trading days ago when price showed topping wicks outside the fibonacci highest band. This will be about $ 1.00 cheaper than before that sale and is part of a zig-zag strategy for TLT overall.
NASDAQ:TLTLong
by AwesomeAvani
$TLT - 20 year US Treasury, possible support -I'm huge ultra BULLISH on US treasuries currently, so please excuse my bias. Not in any specific order, however here are all the factors in this thesis... 1. Interest rates have dramatically increased since Jan 2021, and the overall bond market, including treasuries, had its worst 2 years on record, going back to 1915. 2. Since Nov 2022 just after Halloween, Jerome Powell, "top FED dude", has already said that interest will no longer get increased and that there's possibly three RATE CUTS this year 2024. Even if he said, "Rates will remain unchanged" is enough to make treasuries bounce back to even. (par value). 3. Looking at everything in Barron's most recent "Top Income Plays for 2024" from last week, US Treasuries now offer the most bang for buck interest rate 4.10% with the lowest risk, compared to every other income asset in that article. (i.e, Dividend stocks, muni bonds, REITS, preferred stocks, etc.,) 4. US treasuries are back by the full faith of the US Government. 5. There's now a website that tracks Congress women & men trades, capitol trades.com. And there's A LOT of them buying US Treasuries. 6. There's massive geopolitical risk right now and WW3 is now a word being used. 7. Bottomline: between the yield of +4% and the upside appreciation of treasuries being at the biggest discount in US History, I believe any pull back should bought. 8. COMPLIMENT OPTION STRATEGIES A. You could buy 100 shares of TLT and the following are low risk option strategies to compliment your 100 shares of TLT. i. Sell short term (30 days out) 1 call. If you buy 100 shares of TLT, then you can sell 1 covered call on TLT out of the money OTM, and take that premium and purchase another share of TLT. think "snow ball" effect. The strike I am selling on 1000 shares of TLT is Ten $98 strike TLT calls with 2/23 expiration. Then take that money and bought 10 additional shares of TLT. ii. If you want to get fancy with this, you can also add to the above covered call BUY WRITE and do a VERTICAL PUT SPREAD, aka Credit Put Spread to add to the income (which adds to the "Income Snow Ball" of something that is appreciating. Mo Money Mo Money! a. Sell $90 strike Put on TLT, 30 days out b. Buy $87 stake Put on TLT,, same exp, to cover your short put. c. This produces an extra $200 which you could spend on blow (or groceries) or you can buy 2 more shares of TLT. Weeeeeeeeeeeeee! thats capital generating income, that's generating income, being used to buy more of the thing that's appreciating in value, that's also generating income. THAT'S A LOT OF CHEDDAR!! After one month, THEN REPEAT. :)
NASDAQ:TLTLong
by jgeno
1
Macro Monday 30~U.S. Net Treasury International Capital FlowsMacro Monday 30 U.S. Net Treasury International Capital Flows In essence the U.S. Net Treasury International Capital Flows (US TIC Flows) refer to the movement of funds into or out of the United States through the purchase or sale of U.S. Treasury securities by foreign investors and governments. These flows of capital are an essential component of the overall balance of payments, reflecting the financial transactions between the United States and the rest of the world. What does the data represent exactly? The U.S. Treasury International Capital (TIC) system is compiled by the U.S. Department of the Treasury and provides information on cross-border financial transactions. The TIC data include details on purchases and sales of various U.S. financial assets and liabilities, such as Treasury securities, corporate bonds, equities, and banking flows. In simple terms the Foreign Purchases of U.S. Securities (inflows) are taken away from the U.S. Purchases of Foreign Securities (outflows) to present a overall net figure. The net result of these two components determines whether there is a net inflow or outflow of capital. What are the drivers of positive & negative flows? Positive Flows (>0 on chart) POSITIVE FLOWS in U.S Net Treasury International Capital result from factors such as attractive U.S. interest rates, a stable domestic economy, and global uncertainty that drives foreign investors to seek the safety of U.S. Treasury securities. During these periods, there is a net inflow of capital into the United States pressing the number higher above zero. Negative Flows (<0 on chart) Conversely, NEGATIVE FLOWS occur when other countries offer higher returns, there are concerns about the U.S. economic outlook, or global risk aversion prompts investors to repatriate funds. Exchange rate movements also play a role, as a stronger U.S. dollar can make U.S. assets less appealing. The interplay of the above mentioned factors influences the direction of international capital flows, which impacts the balance of purchases and sales of U.S. Treasury securities by foreign and domestic investor. Now that we have a general sense of what’s driving the data, and what makes an overall net positive and or net negative flow, let’s have a look at the chart. The Chart ✅ Since Jan 2019 there has been an upward trend in Treasury Inflows into the U.S (Black Arrow). ❌This upward trend had one sudden interruption causing a decline from Mar - May 2023 going from positive inflows of $114B to negative outflows of $159.4B, the timing of which coincided with the 2023 U.S Banking Crisis where three small-to-mid size U.S. banks failed. ✅ Since the Banking Crisis in May 2023 Treasury Capital flows have moved from overall negative outflows of $159.4B to overall positive inflows of $260.2B. A major turn around and reversion to the long term trend. ✅The recent surge in positive inflows to $260.2B are the highest recorded since August 2022 ($275B) In summary inflows to U.S Treasuries have been in an general uptrend since January 2019 with one brief interruption from Mar – May 2023 and inflows have increased significantly in recent months and look like they may be about to take out the Aug 2022 highs. Recession Patterns 1. More isolated recessions that were not globally systemic events led to positive net inflows into the U.S. Treasury however larger global events led to outflows from U.S. Treasuries, particularly if those global events involved the U.S. engaging in foreign conflicts. ▫️ During the DotCom Crash (No. 3 on the chart) – The tech sector was badly hit but it was not necessarily a global recession with the associated geopolitical turmoil. Foreign investors sought safety in the U.S. Treasury Market during this time. ▫️ Similarly during the brief Gulf War Recession (No. 4 on the chart) you can see that initially, there was increased net inflows however in Jan 1991 inflows sharply turned to outflows which coincided with the U.S. led invasion of Kuwait (a response to Iraq’s invasion of Kuwait). This was considered a global event and thus led to an exodus of outflows and repatriation of funds from the U.S Treasury Market. ▫️ More recently during the Great Financial Crisis (no. 2 on the chart) and the COVID-19 Crash (No. 1 on the chart) there was a significant outflow from U.S. Treasuries due to the magnitude of these global events. You can imagine foreign market participants clawing funds back into their respective countries to batten the hatches and get into a defensive financial position with global systemic risks high. Better to have a bird in the hand than two in the bush when the bush is on fire. ▫️One other pattern worth mentioning is highlighted in yellow on the chart with an A, B and C. Prior to the Great Financial Crisis and COVID-19 crashes we first had a reduction in overall U.S. Net Treasuries of $373B (A on chart) and $393B (B on chart), respectively. Within 13 to 16 months of both treasure drawdowns we had a recession. We recently had a drop of $437B (C on chart) which ended in May 2023. If history repeats and we had a recession within 13-16 months of this happening, this would be sometime between June and Sept 2024. An alternative view would be that the increase in declines from $373B (A) to $393B (B) to $437B (C) may correspond with the shortening timeframes from 16 months(A) to 13 months(B) to potentially 10 months(C) for the current $437B drop (C on the chart). This would suggest March/April 2024 as a potential recession timeframe (based on the historic reductive time pattern). The U.S. Net Treasury International Capital Flows is a fascinating chart to keep an eye on and should be added to the economic data armory as it will help us interpret what is really going on in the treasury market (there is a lot of false narratives out there ATM). It is also useful in informing us on what the global perspective is in terms of systemic risk vs isolated risk, and also from a historic recessionary standpoint offers value. The best investors in the world call the bond market the market of truth but I have found it hard to find a chart that illustrates this through a global lens UNTIL today. This chart captures that beautifully. Thanks for coming along again PUKA
ECONOMICS:USCFLong
by PukaCharts
US 10Y : "FED vs MARKETS" (...who will win?)Hello Traders! The FED's monetary policy is not convincing the markets, but Powell seems very determined to meet his inflation targets. In near term, market seems to want to counter this hawkish monetary policy, but that could change going forward. In short term, yields remain at high levels and I don't exclude that this rally could continue for the last bullish impulse with wave 5 formation. Does this bullish pattern meet economic fundamentals over the medium term? ...What is your opinion? -------------------------------------------------- -------------------------------------------------- ...trade with care! 👍 If you think that my analysis is useful, please... "Like, Share and Comment" ...thank you! 💖 Cheers!
TVC:US10YLong
by TheAnonymousBanker
23
10Y Treasury Bond Is Looking For A Bigger RecoveryTreasury bond - 10Y US Notes came down a lot in the last two years but this cycle can now come to an end as we can see five waves down into 2023 lows ona weekly time frame. In fact, we also see five subwaves completed within wave (5) on a daily chart after prices recovered and break above the trendline resistance. The move is strong, thus we think that more upside can be coming within a three-wave (A)-(B)-(C) rally, where first leg (A) can be still in progress or maybe already completed as an impulse. Support on subwave 4 or wave (B) dips are at 110-111.
CBOT:ZN1!Long
by ew-forecast
1-Treasury bills give the same returns as S&P 500 with less riskWall Street Investment banks are predicting various prices for the S&P 500 close at the end of 2024. But if the current 1-year Treasury Bill Yield is the same as the estimates then why bother buying the S&P 500? It would be safer buying bills and you may get an equal return. This piece of analysis will look at: Historical accuracy of Wall Street Banks S&P 500 estimates for the year ending Current predictions for S&P 500 estimates for year-end 2024 The current yield on 1-year Treasury Bills Comparison between the estimates for the S&P 500 vs. 1-year Treasury bills. Historical analysis According to research done by Bespoke Investment Group and by CNBC. Excluding 2008, the analyst overshoot of the S&P 500 actual performance over the past 15 years goes down from being over 9% off to a miss of 3.4%. And the fact that analysts overshot the actual market performance 12 out of 15 times, means they did undershoot it three times. When looking at their S&P 500 price target prediction, analysts undershot the actual performance in seven of the past 20 years.1 Historically, these forecasts have often underestimated the actual market performance, especially during the bullish period since 2009, when they were off target seven out of nine times. The average annual projection tends to be around 9.3%, aligned with the S&P's historical average gain. 2 So, overall, excluding the outlier of 2008, analysts tended to overshoot their predictions of the S&P 500 performance by a decreasing margin over the past 15 years, moving from an initial overestimation of over 9% to a more moderate miss of 3.4%. Their track record shows a pattern of overshooting the market's actual performance in 12 out of 15 instances, with just three instances of undershooting. Current predictions BMO Capital Markets: $5,100 Deutsche Bank: $5,100 RBC Capital Markets: $5,000 UBS: $4,700 Goldman Sachs: $5,000 Bank of America: $5,000 Barclays: $4,800 Wells Fargo: $4,600 Morgan Stanley: $4,500 J.P. Morgan: $4,200 Average = $4,800 Median = $4,900 Mode = $5,000 1-Year Treasury Bill The current yield on the 1-Year Treasury Bill is 5.061%. The reasons for the yield being somewhat high are: Strong Economic Data: The resilience of the U.S. economy, especially the robustness of the jobs market, has surprised many experts. Despite expectations for a slowdown, the economy continues to perform well, leading to higher yields. The Federal Reserve's cautious approach to cutting interest rates too quickly is another reflection of this strong economic backdrop. Fed's Cautionary Stance: The Federal Reserve is wary of cutting rates swiftly due to concerns about inflation and the tightness of the labour market. They aim to maintain a balanced approach, keeping rates at a level that won't spur excessive inflation but also won't hinder economic growth. The shift in Fed Messaging: Recent messaging from the Fed indicated less aggressive rate cuts in the future than previously expected. This change in outlook, particularly with the Dot Plot showing fewer rate cuts in 2024, has influenced bond market sentiment. Increased Treasury Issuance: The U.S. Treasury's substantial pace of issuing new debt has disrupted the supply-demand equilibrium in the bond market. The unexpected announcement of raising a significant amount of money through bond sales has added pressure to yields as more bonds flood the market. Yield Curve Dynamics: The yield curve, which had previously inverted (short-term yields higher than long-term yields), is now experiencing a lessening of this inversion. Typically, this occurs as short-term rates fall while long-term rates rise. However, the current situation is unique as the long-term yields are increasing while short-term rates remain relatively stable. The surge in Treasury yields reflects a confluence of factors: a resilient U.S. economy outperforming expectations, the Federal Reserve's cautious approach to rate cuts amid concerns about inflation and a tight labour market, a shift in Fed messaging signalling fewer future rate reductions, increased government borrowing, and the unique dynamics of the yield curve. This unexpected rise in yields diverges from earlier predictions of a decline, shaping the current landscape of the bond market and influencing borrowing rates for consumers and businesses alike. One's prediction of the future yield in a year may be higher or lower. But regardless, when you buy a bond it is stuck at that yield since it represents the interest earned. S&P 500 vs Treasury bills Yesterday's close of the S&P 500 was $4,567.18. If we assume the S&P 500 will reach the average and median estimates that represents a 5.10% and 7.13% return on investment respectively. However, as we have established above looking at the historical analysis of Wall Street estimates they tend to overestimate. Most of the time the S&P 500 closed below their estimate. Wall Street estimates between 2000 and 2018 have an average overshoot of 4.40% from the table above. So there is reason to assume they will do the same this year. If we assume the estate's average and median return of 5.10% and 7.13% respectively are overshooting. That means we might as well invest in 1-year Treasury Bills. Why? Because Treasury bills are safer, and guaranteed return and if they are giving similar returns to the more risker S&P 500 over the next year then why bother with the risker alternative? It makes more sense to just buy 1-year Treasury Bills. Conclusion In the landscape of investment choices for the year ahead, the comparison between the S&P 500 and 1-year Treasury Bills offers compelling insights. The historical analysis of Wall Street's predictions demonstrates a consistent pattern of overestimation, signalling a potential trend that might repeat itself in the current estimates for the S&P 500 for year-end 2024. With the current projections showcasing potential returns for the S&P 500, it's crucial to consider the safety and reliability offered by 1-year Treasury Bills, especially given their current yield, standing at 5.061%. The compelling argument arises when assessing the historical trend of overestimation by financial analysts in forecasting S&P 500 performance. If these estimations continue to overshoot, as historical data suggests, the seemingly safer investment in 1-year Treasury Bills could provide comparable returns with considerably lower risk. The prudent approach might lean toward the Bills, given their guaranteed return and stability, particularly if they yield similar or better returns than the potentially riskier S&P 500. The choice between the S&P 500 and Treasury Bills becomes a contemplation of risk versus stability. While the S&P 500 might offer potential gains, the historical trend and current projections invite consideration of the Bills as a safer and possibly equally rewarding investment option for the upcoming year. Ultimately, it might be prudent for investors to weigh these factors carefully before making their investment decisions for the year ahead. 1 www.cnbc.com 2 seekingalpha.com
SP:SPX
by BlackbearTrader