UST 2s/10s : Flattener

• Current US2YY = 0.49%; Current US10YY = 2.57%; Curve = +208
• Fed Funds target 0-0.25%.
• How low can US2YY go? My guess = Not too much below 0.35% (barring flight to quality event).
• From chart here, 2s/10s looks like can flatten to +140. Assuming US2YY @ 0.35%, that puts US10YY @ 1.75%.
• Clearly then, US10YY <2.0% is not beyond realms of fantasy. 
• US10YY DT objective of 2.20% is clearly attainable with ease and not unrealistic.

US_2s/10s : Dilly Dallying to Regret

• Chickened out from putting on 2s/10s steepener when it retraced to my entry objective at +275 last week.
• Now back wider at +282.
• Much regret. Indecision and 2nd guessing. Must cut it out.

US_2s/10s : Chickened Out

• Had planned to put on 2s/10s steepener around +275 with a stop below +266. This was when it was trading at +288.
• Now that we are here at +275, changed my mind.
• Excuses for being chicken : 1. Attached daily chart looks ominous. 2. NFP tonight. 3. Core book is heavily loaded up already, not much room to take on more risks and too many positions to watch. 4. Not sure how this correlates with my basically long USD book.
• Revisit after NFP tonight.

US_2s/10s : Steeper and Steeper

• By now it should be clear to regular readers that the modus operandi here is breakout trading.
• US 2s/10s yield curve is an interesting one and looks like it's worthwhile to do some work to make sure that this does not end up as another that got away (eg sugar).
• On my Reuters database (only back to 1988), the all time steepest level was +266 in Jul03. In Dec09, we took out this easily and trading at +288 now. Watched it break out and did nothing.
• With the Fed on a normalization path, but probably still some months away from an actual tightening, 2s/10s should remain steep and get even steeper. Stop loss below +266. I will try to get set on a steepener at reasonable risk/reward (not here). Clear downside, upside unknown but the sky's the limit. My favorite kind. Large negative carry though.
• When the time comes, will probably do +EDM1 vs -TYM0 (AC : PDH2 please, thank you). Bottom chart = TYc1 showing potential SHS top ie could get quite bearish.

US Yield Curve : Strong Steepening Trend

Nice visual of what's going on in the interest rates markets currently.

• Short end : ED spread on narrowing course ie bullish price action here.
• EDM0/EDZ0 heading towards +58. Topped at +85.
  
• Downside (EDZ0 outright) contained by friendly Fed expectations, especially after surprisingly weak -85k NFP last Friday.

• Long end : US10YY on upswing.
• Target above 4.00% easily.
• Yield downside supported by debt supply/deficits (TYHo upside limited).
  

• 2s/10s spread in strong uptrend. Expect it to go beyond +300.
• Stop loss below +266 (vs current +286).

So, if bullish buy short end; if bearish sell long end. USD/fx support will likely not come from higher US rate expectations, but more likely from troubles abroad eg PIGS.

[Addendum 11Jan10 9:00 pm : So in hindsight, it was sensible to hedge the long USD exposures by going long Gold, Oil, CAD etc]

US 2s/10s : Turning ?

• Last +245
• Broke previous top at +252 (high +266), but failed to sustain and re-entered
  
• Could this be a top? Start of flattening move?