Tag Archives: bond yields

Interest Rate Futures at Odds with Federal Reserve

There’s a saying that’s been around a looong time in the domestic interest rate and stock markets. Although it was once nearly forgotten, it’s come back with a vengeance since the 2009 collapse. DON’T FIGHT THE FED. Ring a bell? The Federal Reserve Board (FRB) here in the US has been the leader in extricating the world’s economy from the depths of despair. Their policies, whether right or wrong, have put us on the leading edge of the global economic landscape. Two things have happened as a result of this. First, the US now finds itself dragging along the global economy because the FRB’s practices have placed the US ahead of the global recovery curve. Secondly, because we’re now ahead of the global recovery curve, the first rate hike in years is being taken for granted as global pressure suggests the FRB may have acted too soon. The reality of this is the trade setup in the interest rate complex as shown below.

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US Bonds Little Changed in Spite of Chaos

The Federal Reserve has hiked interest rates for the first time in years, China is falling apart and tensions continue to grow between Saudi Arabia and Iran. The combined chaos these events have generated have moved the 30-Year Treasury Bond futures less than one handle over the last year. In fact, the converted yield on the 30-year Treasury Bond futures has risen .0726% over the last calendar year. Therefore, in spite of the noise in the markets, the reality is that not much has changed.

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Buying Opportunity on Bond Washout

We’ve been watching the Bond markets closely over the last few weeks. We were ahead of the curve in our discussion of negative interest rates among G7 countries and had already issued trade alerts within this segment prior to Bill Gross’ announcement of the German Bund being, “the short of a lifetime.” The purpose here is not to tout our own research but to provide you with one of the primary tools I use to stay ahead of the markets and the news.

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Outside Bar Key Reversal in Bonds

Last Monday, we discussed our forecast for lower US Treasury yields ahead in, “Bonds CReeping Towards Lower Yields” for TraderPlanet. Unfortunately, we were early and the market stopped us out with a manageable loss prior to Friday’s key reversal higher. We expect this to continue as the world prepares slower growth and a strengthening U.S. Dollar. Therefore, we will re-enter this trade with a new protective stop placed at Friday’s low of 140^08.

We’ve updated the chart below to reflect our current outlook in the 30-year U.S. Treasury Bond futures.

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Bonds Creeping Towards Lower Yields

The multi-year bond rally has continued unabated. Therefore, it’s no surprise that our mechanical, long only trading program following the commercial traders in the bond market has had a good year winning 7/8 trades as you can see on the chart below, for net profits of more than $5,000 per contract.

The current setup suggests that this roll should continue.

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