Understanding Treasury Yields And Govt BondsUnderstanding yield curve correlations is essential for traders and investors seeking diversification and hedging opportunities across forex, indices, and commodity markets. The yield curve, a graphical representation of bond yields across different maturities, provides valuable insights into interest rate expectations, economic conditions, and market sentiment.
1️⃣ Understanding Treasury Yields and Bonds: Treasury yields represent the interest rates on government-issued bonds with varying maturities, ranging from short-term Treasury bills to long-term Treasury bonds. Bond prices and yields have an inverse relationship: as bond prices rise, yields fall, and vice versa. The yield curve plots these yields against bond maturities, typically ranging from one month to 30 years. Understanding the shape and dynamics of the yield curve is crucial for assessing the market's expectations for future interest rates and economic growth.
2️⃣ Interpreting the Yield Curve: The yield curve can take various shapes, including normal, inverted, and flat. A normal yield curve slopes upward, indicating higher yields for longer-maturity bonds, which is typically associated with expectations of economic expansion. An inverted yield curve, on the other hand, slopes downward, indicating lower yields for longer-maturity bonds, which may signal expectations of economic recession. A flat yield curve suggests little difference in yields across different maturities and may indicate uncertainty or impending market changes.
3️⃣ Yield Curve Correlations Across Markets: Yield curve correlations can offer valuable insights into market relationships and potential diversification opportunities. For example, correlations between the yield curve and forex markets may indicate the impact of interest rate differentials on currency valuations. Similarly, correlations between the yield curve and commodity prices may reflect expectations for inflation and economic growth. By analyzing these correlations, you can identify hedging opportunities and mitigate risks across different asset classes.
4️⃣ Identifying Diversification Opportunities: Diversification involves spreading investments across different asset classes to reduce overall portfolio risk. Yield curve correlations can help identify assets with low or negative correlations, offering diversification benefits. For example, if the yield curve is positively correlated with stock market indices, you may seek to diversify your portfolios by allocating funds to assets with negative or uncorrelated returns, such as gold or government bonds.
5️⃣ Utilizing Hedging Strategies: Hedging involves taking positions to offset potential losses in existing investments. Yield curve correlations can inform hedging strategies by identifying assets that move in opposite directions under certain market conditions. For instance, if the yield curve is inversely correlated with commodity prices, traders may hedge their commodity positions by taking long positions in treasury bonds or short positions in currency pairs correlated with the yield curve.
6️⃣ Yield Curve and Forex Markets: For example, consider a scenario where the yield curve steepens, indicating expectations of rising interest rates and economic growth. In this case, currency pairs with higher interest rate differentials may appreciate relative to those with lower differentials. Traders may capitalize on this by buying currencies with higher yields and selling currencies with lower yields, taking advantage of yield curve correlations to profit from interest rate differentials.
7️⃣ Yield Curve and Commodity Markets: Alternatively, suppose the yield curve flattens, signaling uncertainty or expectations of economic slowdown. In this scenario, commodities sensitive to economic growth, such as industrial metals or crude oil, may experience downward pressure on prices. Traders may hedge their commodity exposure by taking long positions in treasury bonds, which tend to benefit from safe-haven demand during periods of economic uncertainty.
Yield curve correlations provide valuable insights into diversification and hedging opportunities across forex, indices, and commodity markets. By understanding the dynamics of the yield curve and its correlations with different asset classes, traders and investors can optimize their trading and investment strategies to manage risk and capitalize on market trends.
Government bonds
Nasdaq, Semiconductors, Natural Gas, Bitcoin: FOMC reviewDiscussing the sell off in semis today.
Potential reversal in Nat gas
Bitcoin & crypto selloff.
FOMC tomorrow: No rate cut.
Will Powell come out hawkish tomorrow? its looking likely he will based off of the BOJ rate hike. Oil surging doesn't help the dovish case.
Commodities breaking out doesn't help the inflation fight.
Analysing the US 10-Year Treasury YieldAnalysing the US 10-Year Treasury Yield: Fed Meeting Focus and Key Resistance Levels
Market attention is currently fixated on the upcoming two-day Federal Reserve meeting scheduled for Tuesday and Wednesday. The expectation is for the Fed to maintain interest rates at their current level, with investors closely monitoring any updates to economic projections and interest rate forecasts by policymakers.
Following a notable rally last week, the US 10-year Treasury yield has returned to a critical juncture, hovering around the key resistance level of 4.35/36. This level marks the highs seen in August 2023 and February 2024, representing a pivotal point on the short-term chart.
In terms of future movement, attention is drawn to potential upward movement beyond 4.36. A longer-term analysis reveals that an established trendline now acts as resistance at 4.60. Just before this level, the 61.8% retracement of the recent downward trend sits at 4.55 (October to December 2023). For further insights, referring to the video posted on February 19th could be beneficial.
Critical near-term support is identified at the March 24 low of 4.04. Additionally, the 200-day moving average provides support at 4.21, while the 55-day moving average is situated at 4.15, further underlining key support levels.
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US10Y - Can We Get That Last Bullish Push4.329% - 4.354% is unfinished business!
A healthy retracement to 4.200% is not ruled out and would be considered as 'healthy' as price action would still be in a premium.
My philosophy is simple...
Fortify Michael J Huddlestone's concepts that I have studied to consistently predict where the market is more likely to go.
This includes;
- Market Structure
- Buyside/Sellside Liquidity
- Order Blocks
- Liquidity Voids
- Fair Value Gaps
- Optimal Trade Entry
- Premium/Discount Array
- SIBI/BISI
- Many More!
The strategies mentioned here are some of many that I use to implement into my analysis and over time, with consistency I aim to achieve a high degree of accuracy in the markets with the foresight and understanding to assess what went wrong when my bias is negated.
Credits;
- Michael Joe HUDDLESTONE
- Shawn Lee POWELL
- Toray KORTAN
US 10Y TREASURY: rethinking timeSince the beginning of this year, until last week, the markets were certain that inflation is on the down-path and that the Fed might cut interest rates somewhere in May this year. However, the February inflation data made the markets rethink their initial assumptions. The inflation seems to be more persistent than initially estimated, in which sense, the rate cutting time by the Fed might come somewhere in the second half of this year. The market reacted on officially released data, so the 10Y benchmark yields returned a bit toward the higher grounds, reaching the level of 4.3% during Friday`s trading session.
It should be considered that the week ahead might bring back some volatility. The FOMC meeting is scheduled for the week ahead, as well as FOMC economic projections. The market will gain more insights into the course of the potential future monetary actions by the Fed and will position accordingly. In this sense, some increased volatility might be expected. However, the level of 4.3% seems as a peak on charts at this moment, from where some relaxation might be expected, at least toward the 4.2% level.
US10Y - Will We See Lower Rates Going Into The FutureThis week was a waterfall.
Next week will be the week of short seller payback!
A continuation of yields trading @ CE; 4.046%, even sweeping Sellside liquidity @ 4.038% is still a possibility but for the past 4 days, the sentiment is more weighted to the downside rather than the upside, with the lowest displacement NWOG being my last line of defence @ 4.024%.
Going into next weeks trading, we can see that there are many relative equal highs and short term highs that have many buy stops placed above them.
My bet is smart money will look to target those buy stops. Just how far they are willing to reprice to will be something to analyse over the days next week.
My philosophy is simple...
Fortify Michael J Huddlestone's concepts that I have studied to consistently predict where the market is more likely to go.
This includes;
- Market Structure
- Buyside/Sellside Liquidity
- Order Blocks
- Liquidity Voids
- Fair Value Gaps
- Optimal Trade Entry
- Premium/Discount Array
- SIBI/BISI
- Many More!
The strategies mentioned here are some of many that I use to implement into my analysis and over time, with consistency I aim to achieve a high degree of accuracy in the markets with the foresight and understanding to assess what went wrong when my bias is negated.
Credits;
- Michael Joe HUDDLESTONE
- Shawn Lee POWELL
- Toray KORTAN
SG10Y now suggests US Equities incoming Retracement modeThe SG10Y Bond Yields spiked and got back into the range. Then it spiked further today attempting to breakout from the Gann Fan trendline. MACD somewhat supportive but not yet crossed over.
An early indication of an imminent retracement (indicated within the range).
Any further and stronger break would suggest a bigger correction incoming; IMHO, overdue.
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:
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US 10Y TREASURY: currently without doubtsDuring the previous week the market was pricing released job data in the US. Increasing unemployment rate boosted investors expectations that the Fed's rate cuts are round the corner. Also it has been confirmed through the Fed Chair Powell`s testimony to the Senate, with wording “at some point” during the course of this year. Although, initially, it was expected that the rate cut might occur in May, currently the odds are 80% that it might happen in June this year. Treasury yields were aligned accordingly. The 10Y US benchmark rate slipped from the level of 4.2% at the start of the week toward the 4.0% as of the weekend. Such a move was a clear sign that the market has no more doubts that the rate cuts are coming.
Inflation rate for February as well as retail sales in the US are set for a release in a week ahead. Any surprises on this side might impact some volatility on the markets, however, without a significant move toward either side. The 10Y Treasuries will continue to test the 4.0% with a low probability that this level might be breached. On the opposite side, some moves toward 4.1% are more probable.
Yield Inversion US10Y-US02Y vs SPXEvery time the yield curve has gone negative, a market crash follows eventually. The trick is knowing when that happens. Nobody knows.
When the yield inversion starts rising again, that's a sign it's about to pop. Better start selling out of markets into USD. DXY will start rising again eventually.
Looking at the charts, my guess is 3-6 months tops before we reach a market high in a mega melt-up.
Markets will become very volatile! Sell on the way up! Put in sell orders at specific prices you'd be happy with profits. Then wait for your sell orders to trigger and for the money to come in!
We are at the end of a multi-year bubble which is about to pop. Protect your capital! But not yet!
Bank of Japan Yield Curve Control---
The carry trade - an investment strategy that takes advantage of differences in borrowing costs between countries - has provided bumper returns this year as most central banks have hiked rates, causing yields to rise, but at different paces.
"The world's favourite carry trade," according to Bank of America, involves investors borrowing Japanese yen where the central bank has pinned rates low, and converting them to Mexican peso to buy much higher-yielding bonds.
One-year bond yields are about 0.1% in negative territory in Japan , but their Mexican counterparts yield around 11%.
A hypothetical $50,000 invested in a short yen, long peso carry trade for the first six months of the year would have yielded a profit of $15,100, according to Refinitiv Eikon.
---
As the Japanese Bonds start to escape BoJ's Yield Curve Control - this extremely leveraged carry trade is going to explode in everyone's face.
Bearish Yields Could Send USDollar LowerUS Yields have topped back in October 2023 with sharp leg down, which is from Elliott wave perspective first leg A of a deeper A-B-C decline that can send the price back to the former wave 4 area to 3.25% - 2.5%.
At the same time, we can see USdollar Index - DXY also turning down due to a positive correlation with Yields, we just saw some divergence in 2023.
Currently we can see some recovery for the USdollar, as Yields are in a corrective rally within wave B, but as soon as wave C shows up, USdollar can be back to bearish mode.
If we respect technical analysis, Elliott wave theory and positive correlation in the markets, then Yields could send USdollar - DXY lower away from important trendline connected from the highs soon.
US10Y - Playing Hot Potatoes With RiskGoing into this weeks trading, I was exuberant about the third profit @ 4.40% but the highest yields went up to was 4.321% before a shift in market structure occurred on a smaller timeframe.
Currently closed @ 4.184% with a higher possibility of macro EQ @ 4.137% being the next target.
My philosophy is simple...
Fortify Michael J Huddlestone's concepts that I have studied to consistently predict where the market is more likely to go.
This includes;
- Market Structure
- Buyside/Sellside Liquidity
- Order Blocks
- Liquidity Voids
- Fair Value Gaps
- Optimal Trade Entry
- Premium/Discount Array
- SIBI/BISI
- Many More!
The strategies mentioned here are some of many that I use to implement into my analysis and over time, with consistency I aim to achieve a high degree of accuracy in the markets with the foresight and understanding to assess what went wrong when my bias is negated.
Credits;
- Michael Joe HUDDLESTONE
- Shawn Lee POWELL
- Toray KORTAN