Flattening the CurveDon't think that's what they meant by flattening the curve
www.ustreasuryyieldcurve.com
TVC:US02Y
TVC:US30Y
US02Y trade ideas
Next Stop 2007 House Bubble Limit?Well the MoM general downward trend of the 2yr yield and the Fed Funds rate is broken. We've surpassed previous rates and looking now to reach the rates of the 2007/8 housing bubble. Yield inversion becoming flat, due to rising 30yr rates vice the lowering of the 2yr, and with newly relaxed lending for first time buyers, it looks like rinse and repeat for a bubble. Hopefully we learned from the past and only buy within our budget. Glad I was able to get a fixed rate. My money is on another rate hike from the Fed.
TVC:US02Y
FRED:FEDFUNDS
SPX vs US02Y & FED Funds RateNotice how the US 02Y closely follows the Fed Fund rate. Interesting!
SPX starts going down when 2 year bond rate and Fed Funds rate stabilize and start going down.
I'm thinking the market top is in September 2023.
2 Yr Yield Screams HigherUS02Y short term bond yield has screamed higher since Powell's comments at Jackson Hole. This is bearish for stocks.
39. JHS and The Dot PlotYesterdays Powell's speech at the JHS carries ONLY one message -> there is NO PIVOT anytime soon. The US02Y seems to agree and promptly move up. It is now hugging around 3.40% which was the Fed Projection for Current Year 2022 as per the 06/2022 Dot Plot. What we can see is that Market is still thinking and awaiting direction as to what it thinks the 09/2022 would look like.
Prior to JHS, market was pricing in 75bps for 09/2022 and 50bps each for 11/2022 and 12/2022. This means market expecting rate hike at a SLOWER pace. Perhaps this would now require reassessment. What is the most important is HOW MUCH the Fed would project for Current Year 2022 in the 09/2022 Dot Plot? In the 06/2022 Dot Plot, Current Year was raised to 3.40% from 1.90%. This is an increase of 1.50%. Anything less than an 1.50% next month would be deemed as a SLOWDOWN in pace. My guess is that they would maintain the SAME PACE and raised current year expectation by 1.50% to 4.90%. And this would potentially gives us another 75bps in 11/2022 and 12/2022. Rates would end near 5.00% this year end!!!!!!
How would this affect EURUSD?
Well, this is easy enough. We would just look at the US02Y closely and wait for the 09/2022 Dot plot. If there would be a MAD DASH for DOLLAR, we would expect EURUSD to rise briefly. Remember, supplies can ONLY be found ABOVE. We should be well aware of the usual playbook. If not, just refer to the price action when the 06/2022 Dot Plot was announced. Price actually MOVED UP 150pips ++ in search of supplies. By now, you should know where to ENTER.
If indeed the Fed is to raise the Current Year by 1.50%, we can really make A LOT OF MONEY. Perhaps I need to sell ALL my bicycles to raise some cash so that I can trade more and make more profit :)
Till next time, have a great weekend.
P/S : As usual, do not just belief what I say. Use your common sense.
2y bondlooking for the ranges for s/r levels to find range to track price looking for short or long. most likely a short
Crash inbound. 99% chanceFWIW I think we will be dropping to where the purple box is on my chart.
The bottom chart is the 2/10 inversion, with the inversion line being that horizontal blue line going across the chart. This means the 2 year bond is yielding a higher percentage than the 10 year bond, which means investors are rushing into long term bonds. What you can see from the horizontal green line on the bottom chart is that we are, as of right now, higher than we have ever been inverted historically, at least as far back as I can get the charts to go. Harry Dent made this his thesis for his dissertation, and surprisingly it has held up. Every single time there has been an inversion, or the bottom chart crossed that blue line indicating that there is an inversion, there was a correlating crash in the orange chart, or the SPX. I've depicted inversions and crashes in orange circles. The time frame is around 7-22 months for the whole crash to play out and the market to bottom. The small inversion in August 2019 led to the 2020 Covid crash, which could have been a coincidence. However, when a coincidence repeats itself accurately every single time something happens we call that a theory.
So my theory is that we will experience a 35-56% drop, just like the last three inversion. The market will bottom between March 2023 and June 2024. My reasoning is that the inversion has been so dramatic and the level of inversion is unprecedented. I will be purchasing some 2 year market puts next week and average into them if they start going against me.
Current state of key bond yields against the Fed Funds rateAny kind of spread inversion, whether it's the 3mo-30Y or 2Y-10Y is simple in principle: you will get paid more for shorter duration bonds compared to longer duration bonds. This is opposite to what normally happens, hence the term inversion.
Shorter maturity (<<10Y) bonds react more to Fed policy. Longer maturity (>=10Y) reflect long-term expectations of growth/inflation.
So if the shorter maturity yield is higher than the longer maturity yield, the bond market believes that near-term federal funds rate will be higher higher than future growth/inflation.
This means the bond market believes the rate hikes are high enough that a slowdown will occur requiring rate cuts.
Because there are many different bond durations (1 month to 30 years), you can have many different bond pairs that can be inverted or not. This is often displayed on a yield curve.
An alternative way to display this is to show the individual yields plotted on a single chart. Normal behaviour is when the yields increase with duration (i.e. whitest line at the bottom, reddest on the top). Inversion is when any shorter term yield line goes above a longer term yield line.
You can pan this chart around to see what happened in previous crashes and compare it to the current situation.
Triangle BreakoutLooks like a triangle breakout to the upside is developing on the 2 year and therefore potential for a further surge in short term yields.
This will put pressure on risk assets if correct.
US02Y/US10Y bonds signals end to market rally. Bear FlattenerUS02Y up ~6%
US10Y up ~0.12%
Definition of a Bear Flattener = market go down.
Is it a perfect indicator? Of course not. But the tendency is that bear flatteners mean money is coming out of the market and going into short term bonds where it can come out of the quickest if market turns around. So the short term bonds act as a kind of pump/dump for the market. We are getting bear flattener headwinds ahead of CPI print next week.
Next week maybe market flattens out, momentum dies, slow stochastic falls below 80, and price sets up to go below prior "higher lows".
Keep on alert.
Not a recessionThe spread between the US 2 and 10 year treasury bond yields. If we follow the narrative, this is not a recession. Move along please.
No recession :( - Sorry Bears, just a equity deleveraging event.Lots of gloom and doom in the market these days because there is no vertical up and easy money is made. Use this opportunity to risk manage, buy quality on weakness as I did a month ago.
What is your best trade idea for the second half of 2022?Hey everyone! 👋
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In the comments below, share your top trade idea for the second half of 2022! What trends do you think will be the most relevant? Will there be any big macroeconomic changes? Will inflation increase? Decrease? Any assets you see that are mispriced bigtime? Let us know in the comments below and drop some alpha for the community!
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33. A lesson on 'When will the FED pivot"???Dear followers,
From lesson 32 yesterday, we discuss that as far as EURUSD is concerned, SELLERS are currently in control.
The million dollar question is, when will BUYERS be in control again?
The answer is obviously knowing when the FED will pivot - stop raising rates!!!
One of the clear indication when this might happen is by looking at the MARKET. The MARKET always tell the truth. This can be seen from the US02Y, which is reflective of short term interest rate condition. Currently, it is trading above the 50MA. Once it drops below 50MA, this might be an indication from the market that the FED may be pausing its rate hikes. This is when we need to be careful in our trades and start to slow down our EURUSD sell orders.
P/S : As always, do not just believe what I say. Use your common sense.
US 2-TO-10 Year curve invertion reaches mark last seen in 2000 US 2-TO-10 Year curve invertion reaches mark last seen in 2000
APRIL FOOLS DAY JOKE?Inverted yield curve crossing 0.000 just 1 hour before April 1st. Could be wrong but last time crossed was before pandemic shutdowns and the housing crisis.
RECESSION CXLD???Just an update and observation, for each major time of sustained economic distress, the candle body has pushed past 0.618 so the recent wick could have been initial panic given current events. Even the inverted yield curve during pandemic was quickly squashed b/c money printer go brrrrr.
I will not discount a possible change but will be watching for any moves past this level.
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Thanks for reading, still evolving in this game.
US 2YR yeild consolidationThe US 2YR has paused its upside momentum giving stonks a chance to have a small rally. Most likely short covering since quad witch caused a gamma unwind. The 2YR would have to break down meaningfully for stocks to have any chance of a decent rally which I don't see happening with the Fed's current rate hike projections.
When does the Fed stop hiking rates?The Fed really just follows the bond market when it comes to their rate hikes. Based on previous history when the 2 year and the 3 month invert the Fed stops hiking rates and potentially starts QE again. At the current trajectory it looks like this could happen by July/August at the current trajectory of this yield curve.
Out The MoneynessThe 2yr yield is inverted to emphasize value rather than yield. The untethering of the DXY from the treasuries are something to watch.
There's a lot to see here. Im viewing it from the lenses of liquidity and solvency.
This is developing. The purpose of this post is to serve as a repository of notes along the way regarding this topic.
DXY shows relative strength of the dollar. But the bonds sell off seems to show it as contextually weak albeit stronger (and in this case the most liquid). I would view this more as a moment of underperforming by the least in a group of underperformers rather than outright comparative outperformance.
Notable Events since the 6/10 CPI print
Yield curve inversion along multiple points of the curve as the short end yields higher than the long end
75 bps being priced in, market wide, some stating as early as this Wednesday's announcement for June. Consensus give 95% probability for July. ~175bps being priced in with high probablility to september.
WSJ piece by Timiraos re the coming hikes.
Celsius (large cap crypto lender) becomes defacto insolvent during what looks like a bank run. Dollar withdrawals are suspended. www.washingtonpost.com
Binance briefly halts dollar withdrawals from the BTC network. One of its networks briefly down due to a "stuck transaction" twitter.com
ECB Fragmentation is popping up with increased frequency in the 10y sovereigns. Draghi's "whatever it takes" comments see the Italian 10yr sell off at a rate leading the euro area sell offs.
In the beginnings of the overnight session South Korea warns "The financial markets and economy are in critical condition." President Yoon: " The government intends to use all supply-side tools to keep inflation under control" - Yonhap
Meanwhile the BoJ amidst zero-bid scenarios on their 10y sovereigns and declares a backstop bid of 800bln yen at the next auction. The lack of liquidity in its bonds is causing havoc to the Yen. BoJ is expected to step in to defend the currency. This may have implications on its regional emerging market peers.
See Further Comments for updates.
2YR YIELD monthly candle's lagging span touched 365 MA. Will it finish this month around that MA line and retest it in July with stocks and crypto bouncing?
quite possible.
2 year minus 10 yield just inverted again .. Observation - Just caught that the 2 year yield once again paying more than the 10.
Wonder if it will hold above the yellow line this time ? Oh Icarus back to the sun eh ? ...
2 year yield breakoutMixed picture here. The US 2 year yield which is usually predictive of the Fed funds rate has pushed higher than a line of long term resistance. It is possible to look at this as a breakout from a grand supercycle falling wedge after a previous false breakout. The RSI chart has a rolling over / topping look to it which may indicate that this rally in yield will run out of gas and I will be looking for it putting in a base of support before calling this a bond market bear and predicting much higher interest rates.
