Bond rally nearing an end?

[ralph00]

The reason why the Fed is coming accross as dovish is because they have additional data that we don't have that makes them believe that the economy is slowing down

Whoa there! What data might that be? Other than being given a 'heads up' a day or two before the employment report, I doubt the Fed knows anything that's not available to the market. How do I know this? ... the Fed is almost always significantly wrong at key turning points in the economy. Just go back and look at public testimony and meeting transcripts. The recently released transcripts from mid-late 2000 show the Fed being utterly clueless about the bubble collapsing all around them. Not only did they not have special information, they were unable to understand what was clear to anybody simply scanning the front page of the newspapers at the time.

If the Fed were the bond desk at a big investment bank, it would have been shut down for lack of profitability long ago.

 

[mcurto]

Would still watch out, locals seem to be pushing for stops, and we haven't hit mortgage selling, if locals push to a level where they have to sell, it will get messy again. Japanese also off this week.

 

[steveosborne]

Quote from Buy1Sell2:

I have stayed long TYM6 for now

I'd say hang in there. A bottom seem to be forming with a soft patch Friday (March 5) and the following Monday when prices could temporarily dip. I'm looking at the middle of next week as a probable entry point.

 

[steveosborne]

Quote from ralph00:

Whoa there! What data might that be? Other than being given a 'heads up' a day or two before the employment report, I doubt the Fed knows anything that's not available to the market. How do I know this? ... the Fed is almost always significantly wrong at key turning points in the economy. Just go back and look at public testimony and meeting transcripts. The recently released transcripts from mid-late 2000 show the Fed being utterly clueless about the bubble collapsing all around them. Not only did they not have special information, they were unable to understand what was clear to anybody simply scanning the front page of the newspapers at the time.

If the Fed were the bond desk at a big investment bank, it would have been shut down for lack of profitability long ago.

I was a little bit too abstract. By "data" I also meant

• non-numerical data such as anecdotal evidence from the business community. A lot of it transpires in the Beige Book but with a delay of several days or weeks;
• output from advanced economic models and knowledge of the most recent developments about the validity of various pieces of statistical info;
• the part about the Fed's intentions that is not included in their "transparent" communication.

 

[JohnL111]

Quote from mcurto:

Would still watch out, locals seem to be pushing for stops, and we haven't hit mortgage selling, if locals push to a level where they have to sell, it will get messy again. Japanese also off this week.

It would appear that the lack of a strong vol bid/continued tight swap spreads during this sell-off, reflects the sharp contraction in mortgage originations. I am thinking that we may not see as much convexity selling this time as earlier sell-offs.

I am still intrigued by the 10/30 put spread (Sep 102/100) that RA called a NOB play. It will be interesting to see if we see more of these plays as we go into supply next week (a flattening event), and then really accelerate the steepening after the almost certainly neutral/dovish FOMC statement. I would be curious to know at what levels on the 30yr would be the optimum point when you reduce long gamma (I think that would be the key greek) on the position.

 

[mcurto]

5yr note got hammered with some huge selling starting at 26, and they are still going down to here at 23.5, about 30,000 sold, lots of big paper looking in there lately, must be 5% is huge in cash for fives.

 

[steveosborne]

Stocks, commodities and the dollar seem to be globally responding to higher interest rates today.

 

[mcurto]

Can't remember who was talking about the options NOB, but they are back again today, sold 8,800 Sep 02 puts in ten year and bought 5,300 Sep 01 puts in 30yr, same guy, just a little different play and weighted.

 

[riskarb]

Quote from mcurto:

Can't remember who was talking about the options NOB, but they are back again today, sold 8,800 Sep 02 puts in ten year and bought 5,300 Sep 01 puts in 30yr, same guy, just a little different play and weighted.

That would be moi. Looks like they're more neutral with this trade.

 

[gharghur2]

Thus far, technically, it looks like we're going to set up some nice parameters going into next week for a possible medium term low in the 30y/10yrr. Yield/price are both moving up to the targeted areas. The internal momentum of the advance is waning. i think we're getting real close.