Steepening Yields & Uncertainty: What says the Bond Markets?
CBOT:ZN1!
US Yield Curve in Image Above
Showing yields on May 27, 2024 vs May 27, 2025 . What happened in a year and how to understand this?
Looking at the image above, the yield curve was inverted on this day last year. Comparing last year’s term structure to today’s, we can see that the yield curve has steepened sharply.
What does this signify? Let’s dive deeper as we share our insights and assessment of what the bond market is doing.
At the March 16, 2022, meeting, the FED finally pivoted away from their "transitory inflation" narrative to a significant supply shocks narrative—supply-demand imbalances and Russia-Ukraine war-related uncertainty. This started a rate hike cycle, with rates peaking at 5.25%–5.50% in the July 26, 2023, meeting.
The Fed Funds rate was reduced by 100 bps, with a cut of 50 bps on September 18, 2024, and two cuts of 25 bps in the November and December 2024 meetings. The FED paused its rate cutting at the start of the year, citing—as we have all heard recently—that the inflation outlook remains tilted to the upside, and given policy uncertainty and trade tariffs, the risk to slowing growth continues to increase. Businesses are holding back spending due to this confusion and continued uncertainty. ** Refer to the image of FED rate path above.
The start of the rate hike cycle also began the FED’s balance sheet reduction program—from a peak of $8.97 trillion to the current balance of $6.69 trillion. **Refer to the image of FED's balance sheet above.
Rates remained elevated at these levels to bring down inflation, which peaked at 9.1% in June 2022. Inflation has currently eased to 2.3% as of April 2025. Refer to the CPI YoY image above.
Ray Dalio, Jamie Dimon, and most recently non-voter Kashkari (FED) highlighted stagflationary risks. FED Chair Powell noted risks to both sides of its dual mandate in its most recent meeting March 19, 2025.
In the March meeting, they also announced a slower pace of reducing Treasury securities, agency debt, and agency mortgage-backed securities. In this announcement, Treasury securities reduction slowed from $25 billion to $5 billion per month, while maintaining agency debt and agency mortgage-backed securities reduction at the same pace.
Many participants and analysts noted this as a dovish pivot. However, given the current market conditions and the supply-demand imbalance emerging within US Treasury and bond markets, we note the rising yields.
The yield curve steepening signifies that investors want better return on their bond holdings. The interesting turn of events here is that US Treasuries and bonds have not provided the safety they usually do in times of uncertainty and policy risk. The dollar has fallen in tandem with bonds, resulting in a devalued dollar and rising yields. Thirty-year yields touched the 5% level, and the DXY index traded at levels last seen in March 2022.
Looking deeper under the hood, we note that a repeat of COVID-pandemic-style stimulus measures may perhaps result in an uncontrollable inflation spiral. The ballooning twin deficits—i.e., trade and budget deficits—with the new “Big Beautiful Bill,” or as some analysts joked, noting this as a foreshadowing of the newest credit rating: “BBB.”
Any black swan event may just be the catalyst needed to tip these dominoes to start falling.
As we previously noted in some of our commentary, debt service payments are now more than defense spending.
The new bill, once passed, is going to add another $2.5 trillion to the deficit. While the deficit is an issue in the US, it is important to note that it is a global issue.
The key question here will be: in due time, will the US bond market and US dollar regain their usual haven status? Or will we continue seeing diversification into Gold, Bitcoin, and global markets?
So, to summarize these mechanics playing out in the US and global markets—in our view—sure, the US administration, one may debate, is not helping by creating this environment of uncertainty in global trade, coupled with a worsening deficit and higher-for-longer rates. The markets currently are perhaps at their most unpredictable stage, with so much going on in the US and across the world.
It is still too early to write off US exceptionalism, and there will be value in rotating back to US markets once the dust on policy uncertainty settles. We suggest that investors stay diversified, watch for any upside surprises to the inflation and do not chase yields blindly as the move may already be overstretched. It is also our view that we are past the extreme policy uncertainty having already noted Trump put when ES Futures fell over 20%.
Although note that near All-time highs or at 6000 level, we are likely to see further headline risks until trade deals are locked in. As always, be nimble, pragmatic and be ready to adjust with evolving market conditions.
Definitions
Plain-language definition: A “basis point” (bps) is 0.01%. So, a 50 bps cut = 0.50% reduction in interest rates.
Plain-language definition: A steep yield curve means long-term interest rates are much higher than short-term ones. This can reflect rising inflation expectations or increased risk.
A “black swan event”—an unpredictable crisis—could set off a chain reaction if confidence in US finances weakens further.
Trade deficit: Importing more than exports
Budget deficit: Government spending far more than it earns
ZN1!
$TLT long to 110 on February 20, 2025Everything is on the chart.
I am calling for TLT to rally from today's closing price of $86 to $110 by Thursday, February 20, 2025.
The Javier Milei Argentina experiment has been a huge success for Argentina, who is buddy buddy with the J's and Elon Musk, both of whom are buddy buddy with Trump.
At the time of this writing, $105 calls for 2/21/2025 are .05 each. If the target hits, they will be worth $5.0, for a total return of 10,000% (10X).
On the weekly chart, you can see the 200 week SMA coincides with my level on that date as well.
Feel free to share.
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SOYBEANS - COT Based Long Trade SetupDISCLAIMER. This is not trade advice. This is for educational and entertainment purposes only. There is real risk involved with trading any market.
I am looking for longs in the Soybean market this week.
Here is why.
-Commercials are positioned very long relative to their overall positioning over the last 6 months, which is bullish.
-Commercials are approaching the max long positioning of the last 3 years, which is bullish. Admittedly, I'd like to see them at a bit more of an extreme. But they are relatively very long right now, which is a valid reason to be bullish.
-While price has declined for weeks, OI has increased. When OI is increasing, we must ask the question "who is causing the OI increase"? If OI is being increased by commercials, this is bullish.
-Advisor sentiment is very bearish, which is bullish.
-Undervalued vs gold and bonds.
-ADX is forming the "paunch" as the ADX rises over 40. Paunch will confirm when ADX "rolls over". The paunch is relatively rare, but when it occurs, we need to pay attention as a market reversal of some significance is near.
-Small specs are overall quite short (although similarly to the commercial positioning, I'd like to see them at more of an extreme).
-Insider accumulation, %$ and Ultimate oscilator all giving buy signals.
-Some major cyclical signs suggesting Soybeans are at a major cyclical low.
For these reasons, I'm long Soybeans and will look to get more long with future entry triggers.
If you have any questions, feel free to shoot me a message.
Good luck, and good trading.
XAUUSD 1300 USD- 3M View Broadening TPNot everything that Shines is gold
I don't share the view of new ATH. on 3 months view Looks to me we are forming a broadening top pattern, if so a massive fall will happen to the price of gold within 1-2 years timeframe
Long-term correlation to 10 year note is yet to adjust back.
Short-Term Outlook: ZN Bonds will decline to 109.16$.I. Bearish Momentum:
The ZN bonds market has recently displayed signs of bearish momentum, with several key indicators pointing towards a potential downturn. One of the most notable factors contributing to this sentiment is the presence of strong seller volume, indicating that there is significant downward pressure on bond prices.
II. Seller Dominance:
Seller dominance can be a powerful indicator of market sentiment. When sellers outnumber buyers, it often leads to downward price movements. In the case of ZN bonds, the sellers have been in control, suggesting that the short-term bias leans towards a bearish outlook.
III. Price Target: 109.16:
Based on the current market conditions and the prevalence of seller dominance, it is reasonable to anticipate a decline in ZN bond prices. Our short-term price target is set at 109.16, which reflects the potential support level where prices may find temporary stabilization.
IV. Intraday Resistance: 110.31:
In addition to the seller dominance, there is a notable intraday resistance level at 110.31. This resistance level acts as an obstacle to any upward price movement and can further support the notion of a downward price trend. Traders should pay close attention to this level as it may provide an opportunity to enter short positions.
In conclusion, the ZN bonds market appears poised for a short-term decline to the 109.16 price area, supported by seller dominance and the presence of an intraday resistance level at 110.31. As a bonds trader, it's vital to remain vigilant and adaptable to changing market conditions while implementing effective risk management strategies. The financial markets are dynamic, and staying informed is essential to making well-informed trading decisions.
DXY Is Long-Term Still BearishOne of the main reasons why USdollar – DXY may stay weak is DXY/ZN (DXY against 10Y US Notes) ratio chart. Now that 10Y US Notes is looking for a bigger recovery, DXY could easily see more weakness, as DXY/ZN ratio chart is still looking lower, but ideally once current bearish running triangle in (B) fully unfolds, which can be in final stages.
With bullish stocks and while bonds are trading at potential support, there's no real reason to be bullish on USDollar, so DXY is long-term still bearish. DXY/ZN ratio chart is now at the upper triangle line for potential final subwave E of a bearish triangle in (B). Bond market recovery, may slow down the USdollar again, which can push DXY/ZN ratio chart into wave (C), but confirmation is below lower triangle line.
However, of course, if USDollar will keep recovering, then DXY/ZN may face higher resistance for a flat correction within wave (B), but it’s still bearish on a higher degree time frame, so sooner or later DXY will back to bearish mode.
Getting Long on Long Duration..US 10-year note futures look primed for significant upside in the coming quarters as rates peak and the global economy rolls over. Weakening China economy already a sign of coming deflation while the lagged effects of rapid rate hikes in the US economy haven't even kicked in yet.
Have a look at the usual signs of a topping business cycle. Highs in homebuilders and consumer discretionary stocks + massive inverted yield curve. You have 110 support on the 10-year going back quite a ways and the last time the COT was this out of whack, it marked a major low in bonds. 5% on 90-day bills (Money Funds) has also traditionally marked a peak in short-term rates.
So $2k of downside vs. $30k+ upside. Excellent, just excellent R/R on this trade. Scaling into longs...
SELL ZB1!Good morning dear traders!
I'm sharing with you one of my trades for today as I usually do.
I managed to share with you the TREASURY BONDS one, as you can see on the chart the price broke the channel for the fist time as a fake breakout, the 2nd time it did the same thing but it managed to come back down ad give us the confirmation to sell, my customers and I got in an hour ago, now since the market is on the move I shared it with you since I can't share them to pu lic at the same time I give it to my customers whom pay for signals.
TP and SL set them at your own risk
If you got any questions don't hesitate to ask I'll answer with pleasure
𝟭𝟬-𝘆𝗲𝗮𝗿 𝗨𝗽𝗱𝗮𝘁𝗲: $TNX Monthly. Moving higherAfter months of consolidation the move higher looks to be starting 👀
As a reminder, this broke out of a 40+ year down trend. Higher rates may be here for longer than you think ...
$TLT $ZN_F $ZB_F $TYX $DXY $ES_F $SPY $VIX $QQQ #Tech #Bonds #Rates #Trading 📈
SELL ZB1!A bonus trade for you, Currently I'm in a short trade on TREASURY BONDS, we got in after breking through the support we have in 125'02, now since we just added another contract and the price has already moved I said why not to share it with you to touch some profits.
I don't share trades at the same moment I get in it since I have customers I give signals to privately
SL and TP set them at your own risk
SELL CL1!A bonus trade for you for today, on the chart you can see that the price was consolidating then cut through the channel and now it kept going down. Get in and set SL and TP at your own risk
I'm sorry I can't publish the only after giving my private clients signals after the market moves. Still you can make some profits.
Recap of my trade for todayGood afternon and good evening for european traders, for my trade today on ZB we closed in loss and it's one of normal things in trading and which a lot of people don't show and share, we didn't trade any other market for some reasons.
I'm sharing this just to let beginner traders that trading isn't always winning, somedays you make losses you recover in other days.
Today we got in after pulling wack on the resistance line and added a contract on the place I placed the 2nd arrow, The big green candle came out after the news release turned up the market to continue bullish and closed after few hours.
See you tomorrow in another forecast !
If you got any question don't hesitate to ask.
SELL ZB1!Good morning traders, today I didn't publish at the morning since there wasn't a clear shot to take, Isaw on the ZB a point to get in and I got in earlier and didn't share it since I can't publish it at the same moment I give it to my clients, you still can get it and touch some profits.
SL and TP set them at your own risk