Bond futures are in free fall and we are quickly approaching a situation where the floor may give way underneath whatever has been holding up the stock market over the past month. Of course you wouldn’t be a regular on Evil Speculator if you did not recall the many times we have peeked over the proverbial abyss only for the Fed to step in and stomp all over the bears. Lucy has had some fun over the past 12 years and clearly it’ll take a bit of finesse to gauge direction and play the swings.
BTW, I wasn’t exaggerating when I said that the bonds are reaching terminal velocity. Just the other day I pointed at the spike low at 158 and suggested that a floor needed to be painted here or all hell would break loose.
While the 30-year bonds are popular among retail traders it’s the ZN that institutional traders are mainly focused on. And you don’t need to be an expert analyst to figure out that the bond market has transitioned from a HV sideways churn to a HV corrective phase.
Accordingly the 10-year yields are exploding higher with opening gaps that exceed the range of last year’s trading range. I think the trend here is fairly clear and continuing to print fiat and buy up any debt instruments that aren’t nailed down seems to have the same effect as pushing on a string.
There is a lot of talk about YCC at the moment referring to ‘yield curve control’ and as I hinted it’s very much possible that the Fed is going to try to pull another rabbit out of its hat. The Wednesday FOMV report obviously disappointed on that front but I’ve seen this game played before, meaning the Fed plays hawkish, the bears start salivating, and shortly after a surprise announcement pulls the rug underneath of everyone’s short positions.
With bonds falling like an ACME anvil and yields exploding higher. For some mysterious reason (yes I’m being cheeky of course) the XLF is not following higher and if you’re a sub then you probably know why. Sorry I can’t give it all away 😉
Now let’s take a look at our list of entry candidates in an attempt to from the gyrations over the following days and weeks:
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