03 July 2007

10 Yr T-Notes Setting Up

In the early part of June, US treasuries were responsible for some extreme consternation in the equities market due to to their rabid decent into the nether regions of recent price history. (Inverse relationship to interest rates. Bonds down = interest rates up, for those who don't know). From the highs in June at ~108½ on the September 1o year T-note contract, prices plunged all the way to under 104 in a month.

This really caught the attention of an interest rate obsessed equities market. Although the chart doesn't really show it, it put the wind up those who are awake to the risks.

The recent retracement of that move has meant that folks have lapsed back into their easy credit induced trance. However at this point there is an interesting technical setup shown here on the above mentioned contract.

The retracement has taken us to 50% of that move, which followers of Fibonacci and Gann swear is significant. For me, enough follow this theory to make me sit up and take notice, particularly a setup as clean as this.

Aggressive traders might already have gone short already; others may be looking for some confirmation in the price dropping through the support line. I'll be interested in what else happens if the bond dumpage continues.

It could get very interesting.


grant said...

Bernanke is between a rock & hard place.

The Fed's sterile intervention policy is doomed as we are currently seeing to increasing inflation.

Therefore rate cuts are an impossibility at the moment unless they totally give up against inflation.

Rate rises, and the economy via housing tanks further, stockmarket tanks, and the Fed catches **** from the Whitehouse.

Incidentally, you're a Yank, so happy 4'th July to you!

jog on

w.a.l. said...

Cut rates in the face of increasing inflation? I'm no economist, but wouldn't that trash the USD big time?

I can't see them cutting either, particularly if the bond market continues to tank.

Another contract I follow is the Eurobund and that is breaking down as we speak.

grant said...

Yes, which is another way of measuring inflation viz. reduced purchasing power.

The only way that the US is staying afloat currently is that the US$ is the reserve currency and oil etc are priced in US$, thus more can be printed if necessary.

If the Euro took the place of the US$, then the US would be in real trouble, but, so would the rest of the world and we might very well see a depression to rival the 1930's or worse.

The 1930's was in part triggered from the switch from the British Pound to the US$.

It hasn't come to that yet, but, Bernanke needs to address inflation realistically and not from this non-core/core measure that they currently employ.

With non-core + core real inflation would be higher [substantially] and interest rates would be adjusted upwards.

Of course the consequences in the CDO, CLO, CDS, markets would be impossible to judge, save it would probably be bad.

Greenspan took a reasonable tool and totally mis-used it for far too long and the result is this hideous mess.

jog on

w.a.l. said...

"The 1930's was in part triggered from the switch from the British Pound to the US$."

Now there's something I never knew. Must study up on the Great Depression a bit more.