Thinking about Bonds.Cut & Paste Style.

This will be an attempt to contextualize a view on Government Bonds by cutting and pasting copy from my favorite Finance blogs and Daily notes.

What a great learning experience today was to a young neophyte. The risk management process of hedging out the delta in equity exposures, and its importance came to light.

Here is Mr.White from Heisenberg Report noting the play by play from Bloomberg and the safe heaven bid into treasuries at day’s end.

As Bloomberg notes, “between 3pm-3:10pm ET, 266k TYH8 contracts traded in screens as 10Y yields reached 2.705% before rebounding to 2.75%, richer by 9bp on the day.”

“The turn in equities has now turned vicious enough that it has pulled U.S bond yields sharply lower, of which the yen has been the main beneficiary,” Deutsche Bank’s Alan Ruskin said, adding that “equities are so incredibly volatile – both the drop and immediate/current recovery – that tangential markets like FX are struggling to keep up.”

The following is from Mr. Thornton’s daily note via Hedge Fund Telemetry

Bond Bullish sentiment is now at 7% – deeply oversold.  

Late in the year there were several DeMark exhaustion signals with minor reactions slowing the flattening curve.  The reversal now shows the curve steepening and has a potential first wave up of five.  Banks and financials tend to like a steeper curve however, they also didn’t mind the flattening in the past year too.  What I think they were excited about was the sell off in the 2 year.  

Here’s the US 2 year yield simply embarrassing the DeMark signals but that was important because when a signal fails what you learn from it may matter more.  I do think there is evidence of a turn and I would buy the 2 year now.

Here’s the 2 year yield on a 30 minute time frame that now has completed an upward five wave pattern twice.  When I see this choppy action near tops or bottoms after such a run there is potential for a reversal.

But here’s the chart I am keying off of now.  This is the weekly of the 2 year yield with a recent upside weekly red Countdown 13.  There have been several other upside exhaustion signals.  6 weeks ahead of the election saw a minor risk off period and then another in late November 2016 which sort of capped the upside  in financials as they went sideways for a while.  The recent run starting last September remember had elevated bullish sentiment in bonds and the 2 year yield shot up. There was one false signal but bond sentiment was not oversold but oddly bid.  Now that bond bullish sentiment is at 7% it’s giving me conviction of a decent long 2 year bond trade.

The US 10 year Yield 60 minute time frame has some upside exhaustion but the daily does not have any evidence of an upside exhaustion to note. 

The weekly of the US 10 year has a Setup green 9 and the last two worked well as an inflection point

And from the Commitment of Trades Report. Circa Hedgopia

US 10 year bond positioning shows an 11 month high in net shorts.  We’ve seen short interest higher and that was ahead of a pretty good rally in bonds.  

As for the Eurozone yield proxy,

The German 10 year Bund Yield had a daily upside red Countdown exhaustion last week and is on day 8/9 with a green Setup which has been good in the past year at inflection points

Source: Hedgopia

Hedge Fund Telemetry

Heisenberg Report



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