Friday, November 6, 2015

Bond Rout

Well that monster nonfarm payrolls report puts a cap on a horrific week for bonds.  As I write, the 10 year is trading at 2.31%, and the 5 year is trading close to yearly highs.  This is not a quick move that will just dissipate.  The catalyst for this selling is not just the jobs report but what set up the weakness ahead of it:  Yellen saying December is live.  Well with this kind of report, and my doubts about any significant stock market weakness till year end, there are no more excuses to delay.  If they don't hike in December, they will have lost all credibility with the market, and they will be ignored until they take action.

I have little interest in trading equity index futures now, with the low volatility.  But with blood running in the bond desks, there will be some interesting action in the coming weeks.  I always prefer trading a market that is falling, because of the emotional trade that gets involved.  When everything is going up, the market is calmer, and almost emotionless and lifeless.  You need to see fear in the fund managers eyes to get good two way trade.

This dip in the bond market is not buyable yet.  I am looking at a couple of levels, 2.36% in the 10 year and 1.78% in the 5 year.  Those are big support areas and should be a good risk/reward area for dip buyers.  With the curve staying relatively steep (30 year is weaker than one would expect for such a strong jobs number), there seems to be a lot of liquidation left to go.  Probably will be weak till the 10 year note auction next Tuesday, which is ahead of Veteran's Day holiday (11/11) for bonds.

9 comments:

shzhning said...

Quote: This is not a quick move that will just dissipate
and
Quote: This dip in the bond market is not buyable yet

You seem to believe the bond market will keep falling for a while. So instead of waiting for buying the dip, have you thought about joining the ride down?

Thank you

Market Owl said...

No, I don't like shorting bonds unless everything lines up perfectly. I would rather be a buyer than a seller at these levels, even though I do think we could go down a little bit more.

Big picture, chasing a short in bonds this much lower with this much liquidity is not that exciting for me.

Anonymous said...

Dawg, market down from here, up, or flat? Next week...

Anonymous said...

Same thing for crude? Up, down, flat, next week?

Market Owl said...

Going with crude and market down on Monday, and then up for both for rest of next week.

Anonymous said...

In previous long term tops, when the top was retested and it broke past, the new high was not much higher. Also the topping process was completed more or less around a year. Do you agree with this?

Market Owl said...

I assume you are talking about the SPX. I don't agree or disagree. And I also don't think this is a topping process.

Anonymous said...

Is that based on valuation or lack of economic catalyst to start a bear market?

Market Owl said...

Lack of economic catalyst. Everyone is easing amd Fed is not tight enough. Too much liquidity for a bear market.