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US Fixed Income Update
As indicated this morning, the market is getting pretty close to some key support levels in Fixed Income. We first highlight the 30Y future support we tested today at 114-26. If we bypass this level we have potential to sell off down to 111-24 which is the next key support, and would trigger a massive bond bear market if actually triggered. But we should expect a bounce here.
Then looking at 10Y future we see that we tested and made a slight excess below the triangle support today, but the market rallied back inside the triangle and posted a bullish hammer. If we open above 115-31 tomorrow this would be a strong bullish reversal.
Additionally, in the short end, we see that 2Y swap rates have tested and rejected an important resistacne today and formed a bearish hammer candle (bearish hammer in yield <=> bullish hammer in price) and EDZ0 posted a similar candle after coming very close to testing the bullish trend support on the downside.
For all these reasons we think there is a strong probability of a bounce in fixed income, and we would rather consider entering shorts on a retest of the supports as resistance after they are broken, and initiate a long bias with options here.
Good luck trading,
Nic
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Dead cat.
Now that my TBT is back in the black, maybe I just should just dump it now. Always the risk that I'll miss a nice move if Treasuries swirl down the can.
2010, going to be a year to remember.
On a long enough timeline the price of any leveraged and/or short ETF is zero.
Just getting to even myself and I've had the position on for almost a year. On short and/or leveraged ETFs the math just makes it impossible to hold onto any gains longer term. I knew this going in but expected a sharper long bond sell off sooner. TBT is better than most in this regard it seems but if you were actually short a long bond or two you would have done much better.
Let me also take this oportunity to say that this has been a banner day for Zero Hedge.
Well done ladies and gents of the staff!
DCRB, Nic is a little more short term & tactically minded. Before you give up your TBT position, have a look here & think about the break & close over the 10 year long trendline. First close at this level today since 6/17/08 & four attempts to penetrate that trendline.
http://i43.tinypic.com/v6m2jl.jpg
Yes, 2010 just might be a year to remember in bonds. Nic is right on one point, if the rate rise continues over key resistance, 112 for the 30yr, things might get very uncomfortable for the FED.
Nice chart, thanks Lionhead!
My experience with the 2x and 3x bearish ETFs is mostly bad (that is, I have lost more than I made overall), even though I had a great 2008 with SRS.
No, I did not read any prospectuses! But, I do now understand that these are terrible trading vehicles for making money if you hang on to them.
You're welcome. I use the simplest vehicle of all, RRPIX. It follows the chart pretty well, you can hang on to it, no cost of carry & no entry/exit fees or complicated unwinds. I think this is the first skirmish in bonds; we might get another good jolt up in May/June if crazytown keeps "pumping paper" for the elections. Good trading!
The decay sucks but bearish ETFs did poorly in 2009 more as a result of the market than the ETFs themselves. If you bought a bearish ETF in 2009, sure as hell you were going to get taken to the cleaners if you held throughout.
Nice analysis. Thanks!
BTW: I had to get out the calculator for that CAPTCHA.
Makes sence for an oversold emotional rally. But that means Tyler your perma Bear equity call is stil on hold as sovereign debt issue is the trigger in my mind ST.
Maybe we bounce, but its gonna last about 11 seconds - tomorrow it becomes official government policy, let the government payment of people's mortgages commence
The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be their unemployment insurance, for up to six months.
In some cases, administration officials said, a lender could allow a borrower to make no payments at all.
Source, please.
Article published to bberg source Washington Post - see this is easy, government pays you unemployment insurance, then you take that money and pay your mortgage, economy on self sustaining path to recovery
Obama Administration to Order Lenders to Cut Mortgage Payments for Jobless
2010-03-25 22:04:38.798 GMT
Obama Administration to Order Lenders to Cut Mortgage Payments for Jobless
By Renae Merle and Dina Elboghdady
March 25 (Washington Post) -- The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be their unemployment insurance, for up to six months.
In some cases, administration officials said, a lender could allow a borrower to make no payments at all.
The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.
The administration's newest push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, by encouraging lenders to cut the loan balances of millions of these distressed homeowners and possibly refinance into loans backed by the Federal Housing Administration. The problem of so-called "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.
The new initiatives are expected to take effect over the next half year and will be funded out of money remaining in the $700 billion bailout program for the financial sector, administration officials said. They said no new taxpayer funds would be needed.
The announcement comes as the administration faces increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75 billion marquee program, known as Making Home Affordable. And the Inspector General for the Troubled Assets Relief Program has raised concerns that many borrowers may redefault even after receiving relief under the program.
In the meantime, there is a growing backlog of distressed borrowers awaiting help from their lender and threatening to hamper efforts to stabilize the housing market. The "program will not be a long-term success if large amounts of borrowers simply redefault and end up facing foreclosure anyway," the inspector general said in a report released earlier this week.
In addition to mortgage relief for unemployed borrowers, the program features several other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth. Underwater borrowers now make up about a quarter of all households, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.
For one, the government will for the first time provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if it this amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years as long as the homeowner remains current on the loan.
Until recently, administration officials had been reluctant to encourage lenders to cut homeowner's principal balance, worrying this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.
Second, government will double the amount it pays to lenders that help modify second mortgages, such as piggyback mortgages, which enabled home buyers to put little or no money down, home equity lines of credits. These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.
Federal officials have estimated that about half of all troubled homeowners have a second mortgage and last year launched a program to encourage lenders to restructure them, but has struggled to get the effort off the ground.
Third, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan.
-0- Mar/25/2010 22:04 GMT
Bonds are not going to get a meaningful bounce until the equity rinse comes, the demand is not there, the boyz might try to goose em but the damage is done, CBs, especially China and Japan are not buying.
My kin have been battered for way to long. Let my brethren awake from their slumber and renew their rightful place. Patience is still required but the time is near. The apocalypse is coming in the form of a cratering treasury market. The current administration will learn to fear the bond market as others have in the past. Forget the ETF or 2x or 3x. SELL FUTURES!!!!!!!
...
Dude...chill, occasionally at least
OK, fine, wonder twin OC's unite!
Rock on TD! Love it.
manipulated market?????
Yields have backed up towards a long term down trend. It’s difficult for me to see a much higher move from here (at least in the next one to three years or until the deleveraging process is behind us). Until then, the next big move is lower.
I expect core CPI to continue declining for at least the next year or two. Headline CPI should also roll over in the coming months/quarters.
Given the growing macro risks on the horizon and the shortening fuse on those risks, we are buying here, and will continue buying on further weakness.
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