Bond rally nearing an end?

Quote from steveosborne:

Well, the problem is that today's drop killed the opportunity I was waiting for. I want to get short but I was expecting bonds to go up first, before going down for 4 to 6 weeks. So right now, there's no good selling or buying opportunity.
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I'm just curious about what you're saying here so that I understand. You were thinking that after a run up, that bonds would fall for up to 6 weeks? Wouldn't you still then feel that you could sell and still have more of a breakdown? Please clarify.
 
In terms of 10Y vs. Bund spread the big cash levels from one of the dealer commentaries late last week were 95 basis points and 115 basis points (TY over). Late last week their outlook was for wider spreads and I would imagine they haven't changed their opinion that 115 basis points will be tested at least in the near-term. Be careful though sometimes the levels that dealers give in their commentaries are areas they use to offset their current position so those may not hold. I think the bund may be closer to enormous stops though than Treasuries are so would maybe hold off getting short the spread (short tens vs. long bund), but even at these levels probably still a good trade.
 
That "crazy talk" you're referring to has officially started.

http://www.marketwatch.com/News/Sto...D59-4E72-B4F4-8BA4FB5AE909}&siteid=mktw&dist=

Monetary policy still far from normal
By Rex Nutting, MarketWatch
Last Update: 8:24 PM ET Mar 28, 2006

WASHINGTON (MarketWatch) - If the Federal Reserve follows its historic patterns, it'll raise interest rates between two and eight more times before stopping.
After 15 straight rate hikes by the Federal Reserve, real interest rates are still more than a half percentage point below the long-term average. See full story.
And the current real federal funds rate is 2 percentage points lower than it was the last time the Fed found the sweet spot of high growth and low inflation.
On the heels of the Fed's decision Tuesday to raise its federal funds rate to 4.75%, the question everyone wants to know is: How high will the Fed take rates? 5%? 5.50%? 6%? Or more?
No one really knows. It will depend on the data, especially inflation, jobs and economic growth. See our complete Fed coverage.
While every economic cycle is different, it's instructive to figure out what the Fed has usually done in similar circumstances.
What's normal for the Fed? A simplistic historic analysis shows that the federal funds rate is normally higher than it is today.
Over the past 50 years, the fed funds rate has averaged 5.85%, but that average is distorted by several years in the early 1980s when the fed funds rate was in double digits, as was the inflation rate.
A better way to judge the impact interest rates have on the economy is to look at the real interest rate: that is, the fed funds rate minus the inflation rate.
Adjusted for the increase in the consumer price index, the real federal funds rate has averaged 1.75% since 1956. Currently, the real rate is about 1.10%, with a fed funds rate of 4.75% and a trailing inflation rate of 3.65%.
To bring rates back to the 50-year average, the Fed would need to raise rates or lower inflation by a cumulative 0.65%.
Maybe 50 years is too long of a period to tell us anything meaningful. That period includes times of low inflation and modest growth, times of high inflation and no growth, and the times of a so-called Goldilocks economy of low inflation and strong growth.
The Fed achieved a soft landing in the economy in 1995. From late 1994 through mid-1998, the Fed managed to keep the fed funds rate relatively steady between 5.25% and 6%. The economy prospered, growing at an average rate of 3.7%. Inflation averaged 2.5%.
During that time, the real fed funds rate averaged 3.1%, two full percentage points higher than today.
This analysis suggests that, in a period of high productivity and high growth, it may take a somewhat higher real funds rate to keep inflation low.
If the Fed wants a 3.1% real funds rate, it might have to boost nominal rates another 2 percentage points to 6.75%. The Fed probably wouldn't have to do all eight quarter-point hikes, because that much tightening would probably have some impact on lowering the inflation rate (otherwise, why do it?).
If inflation rates moderated to 2.5% or so under the pressure of Fed tightening, the Fed could probably stop at 5.50%.
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Quote from Buy1Sell2:

I'm just curious about what you're saying here so that I understand. You were thinking that after a run up, that bonds would fall for up to 6 weeks? Wouldn't you still then feel that you could sell and still have more of a breakdown? Please clarify.
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I'm a swing/position trader who likes to ride 4-8 week waves (often until option expiration); and for me an opportunity is when two things occur simultanously:
1. My statistical data is telling me that one side has exausted a lot of resources to bring prices where they currently are while the other side decided to step aside, waiting for the current trend to show signs of fatigue.
2. Information processed by overall markets (bonds,stocks,dollar,oil,gold) to get prices where they currently are is becoming repetitive and losing it's effect.

So one more leg up (to complete the rally that started three weeks ago) would have been the kind of residual activity that would have cleared the table for a slide. Right now, the market is all tangled up and has been so for, I would say, about a week.
 
Quote from mcurto:

Perfect, now they have to start pricing some of that crazy talk.
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Longer term I do pay attention to the news. I do believe we will have at least 2 more rate hikes, maybe more. Commodity prices which had taken a dip will come roaring back and increase inflation worries. There will be some support for bonds coming from money being diverted from equities in the long haul. Bond yields will gradually rise over time.
 
Yes, the CRB took quite a hit.
But like you said it has rallied some.
It is still in danger of collapsing though, it will have to rally higher with the aide of Crude and Gold.
 
Quote from mcurto:

Perfect, now they have to start pricing some of that crazy talk.
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I was expecting bonds to go down and drag stocks and oil with them but instead
  • The NASDAQ is still welcoming and celebrating news and comments about solid growth;
  • Bonds are going down, as expected, but mainly because of the way the long end is incorporating additional inflation worries;
  • Oil and gold originally behaved like children trapped in the crossfire of arguing parents (stocks up and bonds down) but eventually the strength of the stock market fueled commodities.
 
Hey Steve,

I noticed something I hadn't seen in quite a while:

Bonds making new lows for the day ... while Stocks were making new highs

Think there is some major money coming out of bonds and going into stocks...like in asset allocations of funds
 
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