Bond rally nearing an end?

Not much activity in terms of futures curve plays. As for the mortgages guys hedging prepayments in the options they are long the Nov 107 calls in the 10yr along with the Dec 108 and Dec 110 calls (Countrywide in the Nov and all Wells Fargo in the Dec, must have different compositions in their portfolios). All of the NOB option plays from months back have been quiet. They were all set up in Sep while it was the middle month (mostly strangles) and haven't been rolled since.
 
The long slow grind upward in Treasuries continues with the trade today expecting minor help from the numbers and perhaps confirmation from the Fed speeches that the Central Bank is indeed on hold. In fact, in the Asian US Treasury action overnight , yields were lingering around a fresh 5 month low with the trade generally assuming that the Fed dialogue today would result in more price gains. Some players are beginning to suggest that bonds are getting expensive but when we see signs of slackening home inprovement sales, weakness in home sales, declines in housing starts and permits and reduced US auto production in the 3rd and 4th quarter, it is not hard to buy into the slowing theme. In fact, I suspect the majority of the recent gains in Treasuries came from a downward adjustment in inflation fears plus the huge short covering stops accumulated above key resistance levels, and that only a minor portion of the recent gains have come distinctly because the slowing US economy. However the trade isn't fully convinced that the economy is slowing and I suspect that current prices include " 1 hold " and that it would take progressively weaker data to result in the market factoring in a second pause. I doubt that the market will see severe enough data to fuel agressive price gains, but minimal weakness in the numbers is widely expected and the bulls look to maintain control over prices. In fact, with the equity market a little off balance, the bull camp might only be threatened by a sharp rise in oil prices of the Iranian UN answer or another unexpected terrorist attack.
 
Just a warning PIMCO is beginning to leg their core strangle position in the 30yr (normally the 10yr). I have watched this time and again over the past four years as they sell calls on any major rally or break as sentiment seems to be reaching huge turning points. In other words, when PIMCO was selling the Sep 103-108 strangle as a spread the 10yr was at the upper end of the range and around mid-strike, then as yields peaked toward mid-year they began selling the 102, 103, 104 puts outright and likewise at this point the last month or so with recent low yields selling the 108, 109, and 110 calls in Sep. This time around it is the 30yr Dec 106-112 and 105-111 strangles and no different, selling calls at near low yields for the year and likewise selling puts if we trade toward the bottom of the range. Doesn't make sense to play for major structural breakouts these days. Trade the range that PIMCO sets. 30yr sep straddle closed at 5.5% (expires Friday) vol. These are 20yr lows in vol.
 
Quote from mcurto:

Just a warning PIMCO is beginning to leg their core strangle position in the 30yr (normally the 10yr). I have watched this time and again over the past four years as they sell calls on any major rally or break as sentiment seems to be reaching huge turning points. In other words, when PIMCO was selling the Sep 103-108 strangle as a spread the 10yr was at the upper end of the range and around mid-strike, then as yields peaked toward mid-year they began selling the 102, 103, 104 puts outright and likewise at this point the last month or so with recent low yields selling the 108, 109, and 110 calls in Sep. This time around it is the 30yr Dec 106-112 and 105-111 strangles and no different, selling calls at near low yields for the year and likewise selling puts if we trade toward the bottom of the range. Doesn't make sense to play for major structural breakouts these days. Trade the range that PIMCO sets. 30yr sep straddle closed at 5.5% (expires Friday) vol. These are 20yr lows in vol.
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Mcurto is a rock star. Thks for that.
 
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