Bond Apocalypse Averted - For Now

Well my picture perfect 10yr t-note trade with all its bearish connotations has been scuppered over the last to sessions by none other than, err... the bears.

NEW YORK, July 10 (Reuters) - U.S. Treasuries rallied on Tuesday as investors poured out of stocks and speculative bonds for the relative safety of U.S. government securities.

The drive to Treasuries was fed by mounting concern over subprime mortgage debt and the deteriorating housing market that could also hurt U.S stocks, analysts and trader said.

Earnings warnings from retailers and home builders and also credit rating agency Standard & Poor's statement that it may cut ratings of some subprime loans and is reviewing its ratings of collateralized debt obligations were all factors hurting equities and nongovernment bonds.

"It has to do with the S&P headline on subprime. Credit spreads are blowing out. The fear is that they will force selling by those investors who can't hold on to these low investment-grade bonds," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York. >>MORE<<

Interestingly, the technically sloppy short setup on the EuroBund has turned up a better looking long trade from a nice double bottom. A long case good certainly be made for the US contract as well, perhaps more so... but I was short. :-P

What has actually happened is that my bond apocalypse has turned into a USD apocalypse, with basically the same reasons quoted; sub-prime/housing slowdown blah blah. This has caused quite some technical damage to the USD index with new lows printed.

For the bulls it really is head in the sand time (if they want to stay bulls). In my humble and ill-educated opinion, the anglo economies are fucked, and are living on borrowed time (and whacking great piles of borrowed money). It will just take a bit of time for muppets to realize this fact.

The precise route by which this financial apocalypse plays out though, is anyones guess.

Weekend update on Treasuries

Just a quick chart update on my latest obsession in the treasury markets. The short trade setup triggered nicely and has continued in the desired direction. The 10 year T-Notes that I trade are now roughly at the first point of possible (and tenuous IMO) support and not really showing any signs of stopping at this stage.


The other contract I follow is the EUREX Euro Bund. Although the setup wasn't as technically crisp as the t-notes, it was still a valid short setup that triggered a bit earlier while the yanks were messing around and tyeing firecrackers to their neighbor's cat's tail and other pyrotechnical frivolities.

The bund is actually now testing contract lows, a point interest rate obsessed equity investors deem to have missed at this point... or are ignoring.


... or maybe they are expecting support.

Next Leg Down For Treasuries?

Earlier in the week I highlighted a setup in 10 year t-notes. Aggressive traders may have taken a short trade straight of that setup, others may wait for a confirmation of price breaking below the trendline. Those waiting got their trigger today.


However there was clue that this would definitely break down in the price action of the Eurobund, which put in a nasty down day on tuesday and has continues down since.

Now things get very interesting, and not just for bonds. Equities are not likely to react well to lower bond prices and the US indices are off a few points as a result.

Technically, there are some obvious points of possible support, but below Junes low folks will likely start shitting themselves. As several commentators have pointed out recently, the market is starting to do what the Fed refuses to do... and should do.

Elswhere, the Brit have jacked rates up another quarter (but should have gone .5), and the Eurozone is announcing later today.

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.