Bond rally nearing an end?

steveosborne,

I've been following your commentary here and on your blog closely.

I can't speak for the fundamentals, but from an intraday technical standpoint, these attempts at 107 15 have been really weak.

Wasn't today's Jobless Claims report within the range of having no negative effect on today's market? In other words, shouldn't the rally from yesterday have continued?

I'm bearish on bonds, so I'm playing devil's advocate here. I think we'll see 106 28 today.
 
My approach is what I would call intermarket logic to derive the markets perspective on fundamentals. I don't care about the fundamentals per se, but how markets view them and <b>reevaluate</b> them. I launched a blog this week on the internet that will eventually show my line of reasoning through various situations. The blog is http://www.steveosborne.com and since I'm already getting feedback from people who have all kinds of questions and comments, I will eventually enhance my website with feedback forms and a forum area.

Today is the best time to initiate a short position because today is THE day the inflation-risk premium is starting to build up again.
 
steve,

Could you elaborate a little on the inflation risk premium?

BTW, today I just shorted some additional ZN's to add to my ZB shorts. It had nothing to do with the inflation risk premium though.
 
Short term bonds and long term bonds are different animals -- Landboy is pretty good at explaining why. When the short term drives prices its because the bond market is mainly expressing its view about the current beat of the economy but when long term bonds drive prices, its because the market is focusing on risks and opportunity costs associated with the possession of US treasuries. Risks such as inflation and currency devaluation.

The <b>variation</b> of the risk premium is the difference between how much ZB is moving in relation to ZN and reflects the markets reevaluation of risk associated with inflation and/or exchange rate fluctuations. Since ZB is what I expect to lead bonds in a downpath because of oil, ZB should be the instrument of choice. But ZN will work very well too :-)
 
As additional comments to my previous post, I would like to mention that the falling stock market is exercising pressure on the short end to pull bonds up while oil and gold are pushing the long end down, in the opposite direction. That's why bonds are showing mixed behavior this week.
 
Steve, I respect your analysis very much. But I will not change my bullish stance until and only if the 10yr swap liffe contract takes out last week's low.
 
Makes sense. Using specific points of reference is an intelligent and consistant way to trade. Thanks for sharing your view.

My point of reference is the impact the falling stock market might have on other markets. As stocks are falling, I'm staying aware of the possibility that they might drag commodity prices down with them. If that starts happening and if the dollar doesn't drop while commodity and share prices go down, I'll be forced to liquidate my position in a hurry.
 
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