Bond rally nearing an end?

[3dog]

Commercials are loading the boat on 30's:
http://www.softwarenorth.net/cot/current/charts/US.png

tax time is also normally a seasonal low area

 

[gharghur2]

WOW! They've been buying through this whole decline?
Makes me wonder what is considered "Commercial".
Would Central banks also be considered commericals?

 

[WAWTU31]

Quote from mcurto:

I would watch out if you are cautiously bullish in the Notes and especially the Bond. Over the past two weeks there have been so many structural bearish positions put on in the options it is out of control. These are very long-term positions being put on, such as out in September options. The craziest positions are in the 30yr options. John Hughes, an old CRT trader now backed by Stafford Insurance, is long 30,000 (as a local) June 106 puts, and attempting to roll them into the September 104 puts (so far has rolled about 15,000, we'll see at what price pit locals let him out of the rest). There is also a Sep 103-104-105 Put fly on in the 30yr of about 15,000 contracts. Don't forget PIMCO selling the Sep 111 calls about 15,000 times so far. And then the 10yr, a 20,000 lot June 102-103-104-105 Put condor. Finally, the mortgage guys (most likely Wells Fargo), trading in and out of the June 105 puts in the 10yr and then in the 30yr the June 103-105 put spread 1x2 and the July 101-104 put spread 1x2, both 10,000 lot plus positions.

This is the coolest damn thread on the web...no B.S.

So, if you are long the June 106 30yr Puts and trying to roll them into the Sept 104 Puts does this steepening yield curve play suggest:

Short rates LOWER

and

Long rates HIGHER

I donwloaded the specs for the TUT trade so that I can learn and simulate a play on this trade but I am not sure in what direction I am thinking the market will go. Off the top of my head I say Long rates higher but I realize that short rates could go higher at the same time. And is this trade more easily accomplished in the Sept 104 options as opposed to the TUT trade?

 

[BlueHorseshoe]

Quote from WAWTU31:

This is the coolest damn thread on the web...no B.S.

So, if you are long the June 106 30yr Puts and trying to roll them into the Sept 104 Puts does this steepening yield curve play suggest:

Short rates LOWER

and

Long rates HIGHER

I donwloaded the specs for the TUT trade so that I can learn and simulate a play on this trade but I am not sure in what direction I am thinking the market will go. Off the top of my head I say Long rates higher but I realize that short rates could go higher at the same time. And is this trade more easily accomplished in the Sept 104 options as opposed to the TUT trade?

I've been working to get my arms around the TUT for a while as well. I'm still thinking Fed has to jack up rates further and we will invert again - i.e. get another juicy entry for a steep'ner trade. Fed is fighting asset prices, no doubt, and with oil and gold at recent highs Fed still has a considerable way to go.

We'll invert again. Steeper/Flatter trades typically last ~2 years so one can/must be patient with entry/exit points.

As for the options - check out the choice margins on the TUT. Sure beats that time decay, IMO.

 

[steveosborne]

<font face=courier>
10 Yr Note +0'05
30 Yr Bonds +0'04
</font>

The inflation-risk premium keeps growing.

While the strength of the stock market creates more room for interest rate hikes.

 

[gharghur2]

Hi Steve,

The economy is still strong.

Therefore higher rates mainly affect only the cyclicals, while the growth sector keeps piling on those earnings. They are counter balancing each other and the market is basically going sideways.

 

[WAWTU31]

I read on the CBOT website that the TUT Spread was 192 basis points on July 2 2004, where is the spread currently?

Thanks.

 

[BlueHorseshoe]

Quote from WAWTU31:

I read on the CBOT website that the TUT Spread was 192 basis points on July 2 2004, where is the spread currently?

Thanks.

+11 bp pre-open today ... bottomed -16 on Feb 23. I'm thinking we are likely to re-invert.

Most recently peaked Aug 13, 2003 at +274 bp.

 

[JohnL111]

It is interesting that there is lots of chatter from Wall Street about the Fed stopping rate hikes later this year, but no discussion of whether the rate hikes have really been effective. Face it, after +375bp of Fed tightening, credit spreads (ranging from investment grade to emerging debt) have barely moved from very tight levels. [Today there is an article in the Financial Times that Argentina, a SERIAL defaulter, is actually getting calls from investment bankers to offer new debt!]

I think that holding Fed Funds at 1% for so long created a massive credit bubble that will lead to sharply higher interest rates out on the curve. Rates must move up much higher - either credit spreads widen out because of defaults, or inflation continues to be fueled by doves on the FOMC. It may end with 10s in the 7-8% range.

That’s my opinion.

 

[WAWTU31]

"Most members thought that the end of the tightening process was likely to be near and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy,"


FOMC partial statement.