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US02Y

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
Volmageddon. Please Buckle Up. The Plane Will Be Landing SoonStocks are vulnerable to a 5% 'air-pocket drawdown' as greedy traders short volatility. Tuesday's stock-market pullback on February, 13 after a hot inflation report actually showed us something else about the market. It turns out that it did… an overcrowded short side of the options market which was reminiscent of the 2018 and 2020 'Volmageddon' events. ProShares Short VIX Short-Term Futures ETF AMEX:SVXY graph says selling volatility is on the hot spot, like four and six years ago, in 2020 and 2018 respectively. The "Volmageddon" episode happened six years ago after traders piled into a bunch of ETFs that were designed to return the inverse of market volatility (essentially betting on a calm market). And when volatility went up in February 2018 and in February 2020, it tanked those strategies, sending the S&P 500 down more than 10% in two weeks. Investors appear to be taking risky bets again, specifically in VIX futures, which are assets that let investors bet on future volatility. As VIX futures expire, the S&P 500 is seeing stronger price reactions. Based on the magnitude of the move in VIX futures, there is an increasing threat that the rising level of greed in the 'short-volatility' trade, similar to what we saw in 2018 and in 2020, could result in an air-pocket drawdown of 5% or more in the S&P 500, to 4800 points respectively. The short-volatility trade became very popular strategy after 2010 when volatility was low, and traders could make money betting against market turbulence. The Cboe Volatility Index, which is also dubbed as the TVC:VIX or the market's "fear gauge," is sitting around 14, near historical lows. The rebound in interest in short-volatility strategies is once again posing a risk to the broader markets here as a negative catalyst can clearly spark a momentous, derivatives-driven selloff in the broader stock market like that which we saw in 2018 and in 2020. It's not a major concern right away as volatility upticks have been small, and the S&P 500 has remained resilient. The market shrugged off Tuesday's pullback quite fast. But it's worth keeping all your eyes on as all 2024 progress can be erased shortly. Going forward, these expirations will remain dates to keep in mind as the threat of volatility will be elevated as we move further into 2024. Technical graph for CBOE:SPX says we are still in the upside channel since Q4'22, near its upper line, with further perspective opportunities to erase 2024 gain, shrugging back to mid-line around 4800 points. Market breadth says also there're huge divergence in CBOE:SPX and in NASDAQ:NDX all the 2024, as 50-days indicators move firmly down all the year, while indices are still up so far.
FOREXCOM:SPX500
by Pandorra
4
Why Central Banks Buying Gold & Institutions Hedging the Yields?While many of us celebrate the stock markets reaching new highs, central banks worldwide are actively purchasing gold, and institutions are hedging into treasuries and yields. Interest rates are determined by the central banks whereas Yields are determined by the investors. If you choose to lend or borrow money over a longer period, such as 10 or 30 years, you would typically expect to earn or pay more interest for this extended duration loan contract. However, currently, we are witnessing an inversion of this relationship, known as the inverted yield curve, where borrowers are required to pay higher interest on their short-term loans, such as the 2-year yield we're observing, compared to their longer-term borrowing. 2 Year Yield Futures Ticker: 2YY Minimum fluctuation: 0.001 Index points (1/10th basis point per annum) = $1.00 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CBOT_MINI:2YY1!Education
by konhow
25
😳 TREASURY-BONDS COLLAPSE IS JUST ONE STEP AWAY TO COME BACKThe collapse in Treasury bonds in 2021-2023 now ranked among the worst market crashes in history. Since March 2020 to 2023 fall, Treasury long term bonds with maturities of 10 years or more have plummeted over 40% while the 30-year bond had plunged over 50%. That's just under losses seen in the stock market when the dot-com bubble burst. The bond rout was worse than the one seen in 1981 when the 10-year yield neared 16%. The bond-market sell-off that's sending yields soaring is starting to eclipse again some of the most extreme market meltdowns of past eras. Those losses are nearly in line with stock-market losses seen during the worst crashes of recent history — when equities slumped 49% after the dot-com bubble burst and 57% in the aftermath of 2008. Compared with previous bond-market meltdowns, long-term Treasurys are seeing one of the most extreme undoings in history. The losses are over twice as big as those seen in 1981 when 10-year yields neared 16%. That crash came as the former Federal Reserve chair Paul Volcker grappled with historic inflation and pushed the federal funds rate to just under 20%. While interest rates remain well below that level today, the central bank's aggressive turn toward monetary tightening in the post-pandemic era has caused a similar bond-market rout. And some traders have continued selling amid concerns of rebounding inflation, while a deluge of Treasury issuance this year has also pressured bond prices. Technical graph for 10-year yield futures CBOT_MINI:10Y1! indicates that 52-weeks SMA support is still important for further T-Bonds pressure, while 10-year yield (unfortunately to T-Bonds holders) is still following major upside trendlines.
CBOT_MINI:10Y1!
by Pandorra
Perhaps a 'Santa Rally' is just one step away to begin this yearStock markets often enjoy a seasonal share boost during the festive period. It's been an unpredictable year for stock markets after gloomy 2022 but all we are, traders, investors, TradingViewers are hoping for a successful end-of-year boost in the form of a so-called Santa rally. Shares have delivered a mixed performance so far in 2023, amid SVB crisis, high inflation and interest rate hikes, so while children are compiling their Christmas lists, traders also want some sweet candies. Traditionally, festive cheer and holiday household spending make the markets more optimistic during the holiday season, boosting investor portfolios. But will 2023 follow the trend? The "Santa rally", a term coined in 1972 by Yale Hirsch, the founder of the Stock Trader’s Almanac, "describes a tendency for the stock market to go up by 1% to 2%" over final five trading days of the outgoing year and the first two of the new one, said Forbes Advisor . This period has "historically" shown higher stock prices in the S&P 500 CBOE:SPX 79.2% of the time, says Investopedia . What drives the Santa rally? Reasons for the Santa rally are vary and one explanation is the cheery "end of year mood" that means investors are in more of a "buying temperament" rather than selling shares, which pushes up stock prices Will there be a Santa rally this year? Probably, Yes. November "capped off the best three months" for global shares since the pandemic stock market recovery in 2020, so there are a lot of hopes that stars will align, and momentum in the markets, helped by declining U.S. Treasuries rate, will push prices higher in the run-up to Christmas. Sure, there is "no guarantee", though. Sometimes it happens. Sometimes not. The odds of a Santa rally may be in your favor, but the "best option" (author's opinion) is to do nothing, remain invested and be "pleasantly surprised" by another strong month by the new year. The main technical graph for SPDR S&P500 ETF Trust AMEX:SPY says that we right now somewhere around 460 U.S. dollars per share (relevant to 4'600 points for CBOE:SPX Index), and just one step to break it out to reach CBOE:SPX 5'000 Milestone by the end of the year. Just follow the major upside trend, that's been taken from Q4'22. And that is all. Merry Christmas y'all, TradingViewers! See you in a Happy New 2024 Year! 💖💖
AMEX:SPY
by Pandorra
32
THREE WORDS THAT YOU SHOULD KNOW — TNX GOES NUTS!Bank of America says the recession and credit crunch could lead to large corporate defaults. Credit strategists at Bank of America note that the fallout from the recession and credit crunch could see $1 trillion in corporate debt eventually become insolvent. This is largely due to the fact that banks have already begun to refuse lending conditions after the collapse of Silicon Valley Bank. US debt growth has also slowed in recent years, and a "full blown" recession has yet to be officially declared. If a full-blown recession does not occur in the next year or two, the restart of the credit cycle will be delayed. For now, analysts still predict that a moderate/short recession is more likely than a full blown recession. Markets are increasingly nervous about the prospect of a future downturn, with the New York Fed's Recession Probability Index projecting appr. 70 percent chance of a recession hitting by April 2024. The risk comes from the Fed's aggressive 21-fold increase in interest rates over the past 15 months to tame inflation. The US Federal Reserve, having fired a lot of "HIKE RATE" ammos over the past two years. And certainly has fulfilled its goals. In fact, in the second quarter of 2023, the rolling 12-month growth rate of the Consumer Price Index (April value = 4.9%) was below the Core CPI (April value = 5.5%). In human words that means prices of food and energy are deflating year-over-year. To some extent, the risk is also heightened by the recent banking turmoil, as lenders suffer losses on their "HELD-TO-MATURITY" (and in fact "READY-TO-SELL") portfolios of long-term corporate bonds and US Government bonds, as well as in due to a sharp outflow of deposits. The technical picture in TVC:TNX says the key trend is still strong, thanks to tailwinds from the first quarter of 2022 and support of Weekly SMA(52). The second half of 2023 is off to an interesting start. High quality "AAA" 10-year Bond' yield is back to pain levels corresponding to the collapse of the FTX cryptocurrency exchange last fall, as well as the collapse of regional and cryptocurrency banks as early as this spring, 2023 (like SVB, FRC and others). At the same time, real (that is, minus inflation) rates are now certainly much higher, against each of those two marks, as inflation is down.
TVC:US10Y
by Pandorra
2
Parabolic Volatility in the Bond MarketYield Rates represent a percentage. How much would an investor get if they invested in a US Treasury Bond. A stable economy needs three things, at least according to the FED. - Low Inflation - Low Unemployment - Strong Economy Yield Rates are the ultimate weapon of the FED. By manipulating rates they stabilize the economy accordingly. They stimulate when they should, and they calm as needed. A strong economy is a stable economy. Volatility in markets is bad juju. Stability in yield rates is a matter of survival. But it seems that we have failed in that. The average rate-of-change in yield rates has gone parabolic over the decades. And we are talking about 100 years. The bond market is currently in a whipsaw. The rate / percentage yields oscillate is beyond comprehension. Who knows what effects this will have in the years to come. A similar picture prints in FEDs mind right now. In absolute yield-rate terms, the average-true-range of rates has formed a bull flag. Once again this confirms the beginning of the 1960s stagflation. Tread lightly, for this is volatile ground.
TVC:US10Y
by akikostas
$US10Y -Important Close *Weekly- US 10 Years Government Bonds(Yield) TVC:US10Y experienced a pull back in the fourth week of August, after having rallied previously for five (5) consecutive Weeks, printing only green *W candlesticks. The Weekly pullback retraced to a Weekly price level of 4.09% for $U10Y (key level marked on dashed green line) We can clearly see TVC:DXY being dragged higher as well during Yields uptrend (indicating a weak and fearful state of other Major Financial Markets). Seen on Weekly Timeframe, we can easily spot a triangle pattern being formed on $US10Y. Triangle Pattern's Apex can be stretched as far as 238Days from where it currently is. In case Pattern is violated to the downside, a considerable Support-Resistance zone lays just underneath dating back ever since 1912. Below that would be the catching up dynamic support of 200EMA on the Weekly, as well the support-trendline coming from Pandemic Lows. TVC:US10Y uptrend resumption seems very likely from here, especially after bouncing at the key level marked on dashed green line. What is more important to be monitored is the correlation of TVC:DXY going higher in the same time with TVC:US10Y . That would be a nightmare scenario for an investor, and a golden opportunity for those who are on the sidelines and waiting to be heavily invested in diversification .
TVC:US10Y
by Mr_J__fx
The Golden Elephant-- Prologue -- Crises don't come when everybody expects them to. I have said this over and over again, for the last year I've been in this platform. I don't take it back. Finding out the kind of crisis that will come, the time and the severity, is hard. Trading, investing, living, is hard... Some have called me schizophrenic. This is funny. When you say what they want to hear, you are a genius. When science presents something we aren't used to, we take it as impossible. In my last few ideas, I received the "kindest" comments of all. How is it possible... when a chart shows weakness on equities and strength on commodities, it is loved. How is it possible... when a chart shows weakness on gold and strength on dollar, it is hated. In my bio I warned you. You will have to deal with my presence for much, much longer. So here I am again. In front of your face. -- Analysis -- Price discounts everything. The magic of the fractal nature of the stock market satisfies me every time. Chart patterns like flags, wedges, channels, triangles, rectangles, rounded tops, appear everywhere. Some of them have greater strength than others. But each one of them has it's meaning and importance. To get the elephant out of the room, let's look at the historical Gold chart. Do note that this chart measures: How much one ounce of Gold is worth in dollars? In a sense, how precious is a piece of colorful paper compared to a piece of yellow metal? After decades of QE, Gold has trapped itself inside a MASSIVE wedge, that engulfs it's entire lifespan (inside stock market). What is the outcome of such a trap? Usually down. Fractals at their best!!! If one believes in the Dollar Milkshake, they must not believe that Gold/USD will explode. And with Bull-Flagging dynamics in the scarcity of Dollar, what will the outcome be? -- Thought Experiment -- IF a food crisis comes, and you have invested in gold, what would you do? - Find a food market that accepts gold, and purchase food with gold. - Find a gold market and sell gold for dollars, and purchase food everywhere with dollars. Even if you buy stuff with gold coins, the receiver of the coin will go out and exchange it for dollars to pay out their business responsibilities. In both scenarios, gold is taken out of the picture, exchanged for dollars. Either we like it or not, by default we give more value to money because we use it as money. We don't use gold as money. -- Conclusion -- There are two ways price increases. Scarcity and demand. Gold is scarce but who demands it and for what? Dollar is plentiful and everyone uses it. And now, it gets less and less plentiful. Tread lightly, for this is hallowed ground. -Father Grigori -- Extra Charts -- Commodities like oil could very well overperform equities. I don't advice for or against any investment. I am not an investor. Trade at your own risk. If one believes in the Dollar Milkshake, then they should invest either in dollars, or in dollar-denominated investments. Question is: What could these investments be, and how will they perform? For more information, I have linked below my two hated ideas.
TVC:DXY
by akikostas
95
🧽 Mister Poper. Meet The Cleaner Of Your DreamsCopper price continued to provide negative trades affected by the frequent stability below the additional barrier at 3.7280, to manage to reach some negative stations by touching 3.6100. Also, RSI stochastic continues to provide the negative momentum to allow us to suggest forming new negative waves to attack the additional support near 3.5000 followed by monitoring its behavior to manage to confirm the upcoming trend. The expected trend: Bearish
COMEX:HG1!Short
by Pandorra
EURO VS U.S. DOLLAR. TO LOW, OR NOT TO LOW. THIS IS THE QUESTIONThis publication is for Euro against U.S. dollar, and quick and simple as well as all other publications by @Pandorra 2023 is about the end, so let's take a look on technical perspectives for FX:EURUSD . The main graph is EURUSD semi-annual 6-month chart (yes, they also exist on TradingView, as well as quarterly 3-month charts and annual 12-month charts). EURUSD is being concentrated on multi year floor, with lowest levels at semi-annual close around 1.05 (actual again in this time). Well, recently being inspired with finding NASDAQ:TLT multi year floor, I guess that breaking down the 1.05 floor in EURUSD can turn the price much and much lower. Maybe to 1.6 Euro for 1 U.S. Dollar somewhere in mid or late 2020s, or early 2030s. Patience.. Patience.. and once again Patience.. The Time will show.
by Pandorra
🐹 Caution To All TLT Hamsters - TBT Has More Room to DeliverTBT is a UltraShort 20+ Year Treasury ETF. This Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the Daily performance of the ICE U.S. Treasury 20+ Year Bond Index. 1. Always look first. Never rush into a trade or investment blindly. 2. Wait, and wait again, for the pattern to develop. 3. Be patient and use alerts to get notified when the time is right. 4. Measure trading ranges and adjust your plan for sideways action. 5. Look for bases and consolidations. 6. Zoom out and look for historical levels of support and resistance within those bases or consolidations. 7. Markets can go sideways longer than traders can stay solvent. 8. Adjust your stop loss and take profit targets for the choppy price action. 9. Be prepared for false breakouts and false breakdowns. 10. Choppy markets do not trade like trending markets. Technical picture in AMEX:TBT indicates it has possibility to further upside price action, up to 57 - 60 U.S. dollars per share, as key multi year resistance (5-years simple MA) has been successfully broken at the end of 2022.
AMEX:TBT
by Pandorra
$TX 10Yr has done well while short term yields stagnant, oh ohIt's important to keep and eye on the 10 & 2Yr yields. The inverted #yield curve has huge prediction probability. BUT The strongest aspect of this is when it normalizes. We're not far from that as the10yr has been pumping and the shorter time frames have been pretty stagnant. Now, there's 2 ways this happens. Soft landing, economy slowly recovers OR Lower rates, usually = consequences Guess which is the historical? TVC:TNX
TVC:TNX
by ROYAL_OAK_INC