US10YT : Turned/Turning

• Thus far, I have expressed my "US is best" view via FX (excellent results) and Gold (+ve, but so so performance). This has been correct as relative economic performance clearly favors the US. But perhaps it's now time to ditch relative strength and focus on US absolute performance. Thus, am mulling diversifying the same view into the Rates markets.
• ZNc1 chart : looks like the battle-ship has almost completed its about turn. Taken a year, with many whipsaws in the process. The carry traders have probably had their time. If so, it's the turn of the trend traders who are not crippled by the inertia of negative carry considerations. Watch for a strong close below the bold blue line on the chart for sell signal.
• Rates are probably the best trending instruments around. Once it starts and you catch it right, the money simply will not stop rolling in.
• Unlike 1994, this time round the market will lead the Fed. Back then, the bond bear was due to Greenspan catching the market by surprise. This time, it will be due to markets punishing the Bernanke Fed's over-staying QE ad nauseum. Thoughts that "the Fed won't do anything yet" are dangerous. Banish them.
• Trade : Initiated tiny short ZNU3 -129-19. GTC sell orders nearby above to add on to a decent risk level. If the orders above do not get filled and we get a weak close, hit the market then. EDZ5 GTC sell stop-in order placed 2 months ago nearing fill as well.

Business Insider : 1994 Fed Tightening

Having joined the market 6 months after the crash of 1987, 1994 was my first experience of a serious bond bear market. Let me tell you, if you are not mentally the right way round, it's like a marathon torture session - the pain just goes on and on and on ...

At the time, I had just taken over running the ITL, ECU and GBP MM books in UBS and had no clue how correlations go to 1 when complacent markets panic. Boy did I suffer that year.

Nice review of 1994 Fed tightening here.

US10YY : In Full House at 2.04%

• Increased long TYZ1 to full limit on sell off to 2.04% (paid 129-14 earlier this evening). Average in rate on the full position now is 129-20.
• 2.04% = previously very significant yield support, recently broken and now offering overhead yield resistance.
• On monthly chart, triangle breakout on downside, suggesting impossibly low yields ahead. Measured technical objectives will sound crazy to most. Which is the way I like it. The fewer believers, the better.

US10YY : Long TY Trade

• Bought TYZ1 @ 129.13 (2.08%) on Friday. Added on at 130-01 (2.01%) today. Average in rate 129-20.
• Monthly : Possibility of US10YY double bottom at 2.04% looks to have been negated by repeated probes below. Staring now at a large triangle downside break ie yields headed much lower.
• Weekly : Well established downtrend.

US10YY : Where It All Went Wrong

• Forcing myself to continue blogging/looking at markets, with a heavy heart. The few hours from mid-NY session on Monday (post S&P US downgrade) to early Far East trading hours on Tuesday were brutal for me.
• Firm believer of Risk On (eg short USD/CAD), but substantially hedged by being long TY (from 3.00%) until last week when I took off the entire hedge on the first dip in US10YY below 2.60%. 2nd biggest mistake of my T4L life. (Biggest = T4LY1, adding onto out-of-money long Nikke into dips, which subsequently turned out to be new downtrend).
• Without the P&L volatility dampener of the long TY position, I found that I was unable to sit through the whipsaw of those crucial few hours. Stopped out of everything given substantial drawdown.
• In hindsight, was foolish of me to unwind the hedge given the inherent positive carry and the fact that the rest of the Core Book was heavily skewed towards Risk On.
• Now, monthly US10YY chart shows either triangle continuation on downside (a la Japan in the 90s), or double bottom at 2.04%. Too early to tell which yet. Inclination now is to buy TY at 2.33% and 2.48% if we see those levels again.

US10YY : SHS Downside Objective Met

• Long-standing downside objective for US10YY here at 2.51%. Low last night at 2.54%. To all intents and purposes, consider objective met and square up. Stay away!
• Was running long TY against smaller long EDH2/U2 spread. Now left with the ED spread naked. At +3.5 low and at ZIRP, this is the time to hit it (buy spread) in size.

EDH2/U2 Spread : Gone Long to Protect Long TY P&L

• NFP shocker at +18k vs E+125k.
• Grateful to my friend PT with whom I had a long discussion about ED spreads (EDH2-EDU2 was at +33) earlier in the week. Brought this back to my radar after a long 2 month bad run during which I lost a lot of my usual enthusiasm for looking at many markets.
• Just initiated long +EDH2/-EDU2 at +24. 
• Also added to long TYU1 at 123-08 after NFP.
• Reasons for trade : 1. I do not think it is going to narrow much below +25 (=only 1 Fed hike over a 6 month period next year). Perhaps temporary dip below but should not last. At zero boundary, inversion also not likely (unless liquidity crisis when EDH2 is front month).  2. Long TY position deep in the money so a bearish interest rate strategy protects some of that profit.
• Technically wrong trade as chart points to lower still. Going with my experience of interest rates trading here. Value judgment. This could be one of those rare trades where the right thing to do is to double up if it goes a lot against you (another eg = negative bond swap spread).

US10YY : SHS Top Still On

• Yields have come back some way from the recent lows of 2.84%. Now at 3.145%, which is right at the neckline of the weekly SHS top. The latter has a downside objective of 2.51%, so the first attempt to reach it fell well short. I will regard this as unfinished business.
• As with many technical patterns, if it is too clear, the market will almost always come up with a curve ball to confuse. This pullback to the NL should generate a lot of doubts and worries about trend reversal (ie Bill Gross trade). Me, still believe SHS top to perform.

US10YY : Pull back to SHS Neckline = Buy TY

• SHS downside objective on US10YY at 2.51%. Low achieved during this rally 2.92%, well short. Thus, expect plenty more to the UST rally.
• Last night's sell-off took us to 3.11%. SHS neckline is at 3.14%. This is the time to build (or re-build) TY longs.
• Long TY is great hedge for Core long Risk On. Positive carry (3.10% vs 0% funding), good technicals. Just have to remember to take profits on the hedge (ie trade it). Because if core Risk On view is correct, there will be lots of sell-off episodes like this latest leg.
• Risk to using long TY hedge vs Core long Risk On = Spike (up) in US rates, large enough to cause interest rate differentials to drive USD up. This scenario on back burner for now, but have to remain alert to the possibility.

US10YY : Zoom Out = More Convincing

• Follow up on from earlier post today re : US10YY SHS top.
• Recall Double Top in 2009/10 with NL around same level as current SHS top NL. The DT missed its downside objective by a whisker last year (exceeded on intra-week/day basis I think).
• Giving the chart a bit more context, last week's break below 3.14% now looks all the more significant and exciting.

US10YY : Weekly SHS Top Breakout

• Handled this very poorly in the past couple of months. Just could not get my head away from looking for higher yields. Got buried as a result. So many reasons to be bearish (prices), all of which should really be irrelevant for positioning. Price action does not lie, and it is pointing towards lower yields.
• Monthly : Within a large range, too large and useless as trading input. But momentum towards lower yields.
• Weekly : SHS top evident. Broke the neckline at 3.14% last week, having a downside yield objective of 2.51%. The SHS objective matches squarely with downside support on the monthly chart around 2.50% as well.
• Trade : Gone long TYU1 at 122-19. Add at 3.14%.

US10YY : Sold TYM1 @ 122-07

• Weekly chart  for US10YY : The yield band between 3.10%-3.14% shaping up to be quite important. Note this is where yields have bottomed out several times in past year or so; the most recent being the Fukushima spike low at 3.14%.
• Short in TYM1 initiated at 122-07 (appx 3.175%). Stop close below 3.10%.
• Tactical trade only. Non-trending chart which I usually avoid.

UST-Bund Spread : Oh Foolish Foolish Boy

• Tried for ages to sell this but got nowhere fast. In the end got tired of waiting and unlegged the long UST leg, leaving short Bunds naked.
• Chart now looks like the SHS top has broken for real now.
• Unsure of what to do here. Do I buy UST to lock in spread at a crap level ? I had thought that the spread would perform under an environment of higher yields. How wrong could I be.
• In danger of missing the move if spread performs due to UST yields going lower but I just can't bring myself to go long here at 3.25%. This sucks.
• The only thing that will make me feel better is if both US10YY and EU10YY both rise now. (But already wrong once).
• Once again, in trouble because I tried to be too clever.

Short Sterling : Wave Turning ?

• UK 1Q GDP weakish at +0.5% qoq / +1.8% yoy but slightly > expected. Short sterling contracts a bit weaker across.
• FSSZ1 @ 1.21% now vs 3mth Libor @ 0.82%
• Monthly : Still positive.
• Weekly : Possibility of topping action in progress.
• Daily : IF we close today around current levels, it's a confirmed reversal of the uptrend; will negatively impact on the higher time frames.
• Shorting FSS is probably a better hedge for short USD positions than shorting ED.

ED Futures : Short EDZ1 Again @ 9952

• Previous attempt - sold at 9940 stopped out at 9945.5.
• Try again at 9952. Stop above 9954 = contract lifetime high.
• Trade not based on technicals. Think market under-pricing risk of Fed having to put up rates. Too relaxed about inflation risks. Also weak USD will not remain non relevant forever.

Bunds : Naked Short

• Took off the entire long US10T leg of my Bund/US10T spread last night. Hope I will not regret this. Usually when I try to squeeze more out of a spread trade by unlegging, I end up snatching defeat from the jaws of victory.
• The spread chart is looking good. Trading at +4 now, which makes the SHS top looking ever more valid.
• EU10YY is above 3.44% chart point, (now 3.47%) pointing to 3.67%. I have included the actual continuation Bund futures chart here for a change. If we close this week below 120, then 117.52 beckons.
• Somehow, I can't see the spread performing due to a bullish (ie bunds and UST rallying) market. [US budget deficit, inflation worries, weak USD, better growth]. My conclusion is that the spread will go negative under bearish circumstances. Hence my attempt to be a bit clever here. I have my GTC TYM1 bids in at various chart-points below to restore the spread.
• Hope to break my duck with this one. Been on a negative roll lately - buying soybean, selling short sterling just before RPI decline to 4.0%. Timing on these 2 could not have been worse. Not to mention uncharacteristic dithering in selling USD/JPY.

ED Futures : Cut Loss EDZ1 @ 9945.5

• Stopped out EDZ1 hedge at 9945.5. See daily chart - print above 9944.5 is bad news for bears.
• Costly exercise. Had 2 hedges to put on for Risk On book, selling EDZ1 and selling USD/JPY (while it was above 85.00). Unfortunately was too relaxed about the latter and missed the trade completely, while having EDZ1 in too large for my own good.
• Very vicious price action tonight against Risk On (apart from EUR/USD). Fortunate to have taken a large chunk of risk off the book last week. Even with 70% off, the pain is not negligible. However, am making use of the opportunity to re-establish some.

Short Sterling Spread : Initiated Long FSSU1/H2 @ +55

• Bought Sep11/Mar112 short sterling spread @ +55. Just to get involved and stay interested.
• Technically not a particularly interesting entry point here. But given rate hike expectations, think it will be difficult to get in long below +50. Guess +63 and +75 good targets to aim for.

Short Sterling : Struggling to find a Trade

• Follow up on Euribor post about missing a good trade.
• 3mth GBP Libor = 0.82%. FSSZ1 (98.57) = 1.43% ie pricing in Libor increase of 61 bp. Current Base Rate at 0.50% (since 05Mar09). Current Libor is already steep relative to Base Rate. In other words, quite a lot being priced into curve so is clearly NOT a no brainer trade.
• Chart likewise. Monthly looks like it has turned down, but at current price, is not a compelling sell level. Weekly and daily says nothing to me.
• BOE should be next major central bank to hike rates so there is a trade in here somewhere. Just that large negative convergence to Libor makes timing this correctly more important than usual.
• Trade : Reckon it does not make sense to sell too far below 98.76 (chart). On the other hand, do not think we will get a chance to sell too near 98.76. Tricky balance. Have to be very patient with this.

Euribors : Another One That Got Away

• Example of SHS signal that worked beautifully. Unfortunately I missed this completely. In fact, if I am not wrong, this is the first time this year that I am looking at Euribors. In hindsight, it really was gross negligence to have missed this given all the talk about ECB rate hikes.
• See monthly and weekly charts. Clear SHS top formed and neckline was broken around 9833 in mid-Jan11. Currently we are trading round and about the SHS measured downside objective. Impossible to get short here now. 
• Watch daily and weekly to see if we get a double bottom to trigger a more prolonged profit taking upmove. Very possible given that 3mth Libor at 1.24% (post ECB hike fix) and FEIZ1 is priced at 2.19%, almost 100 bp higher by year end.
• Will have to be patient about this. Wait to sell only. Do not buy. Might well be that this was just not meant to be.
• Must look at Short Sterling too.