US Treasuries UPDATE
..Updated this post now with Today's closing chart for 10yr Note
Had to update midday just to get this on for reference... A couple days after my mental stop price of 108'16 was hit intraday on the 10yr T-notes, I decided to stay short my T-note/bond position eventhough we had a close above 108'16 in the 10yr (closed at 108'18 I believe)..
Reasons are several:
1) With speculative longs in the 10yr being about 3 times greater than spec shorts (Commitment of Traders Report says spec longs=800k and shorts=300k. see here: http://futures.tradingcharts.com/cotcharts/TY), I had a good feeling that most of the recent surge upwards could not be upheld because of a lack of any more "long" firepower to fuel any more up surge.
2) Interestingly, the COT report for the 30yr did not confirm the same rate inclinations as the 10yr and had about equal longs and short (see here: http://futures.tradingcharts.com/cotcharts/US ) which tells me that the hedgies may have just been gunning the 10yr, since its the Treasury of choice to trade when betting on rates--all the more reason to think that the up surge was coming to an end.
3) FLEXIBILITY is the name of the game here folks--that's why I use mental stops rather than hard stops many times on mean-reversion, convergence trades. If the mental stop gets hit-then I go out and do additional research to see if the story has changed or not. Then I react-either taking the stop, staying strong, putting on more position-this is also another reason why I like to trade small-therefore, getting bigger doesn't cause me to turn into Mr. Amaranth, Brian Hunter, the Invincible.
Again reevaluating my research, and ever-changing supply and demand environment caused me to have the conviction to stay short and actually add to my short position, rather than stop out a at my original stop price. As we know, treasuries have sold off sharply the past 2 days, and i'm now looking to book partial profits on thes short positions...
I also read this similar analysis by the Macroeconomic guru, Tony Crescenzi, on RealMoney.com. Below is what he said regarding the excessive spec longs in Treasuries.
*********
Two reliable indicators suggest that the bond market is leaning heavily on one side of the boat, suggesting a possible correction soon unless the market continues to receive a dose of weak economic news.
On Friday, for example, the Commodity Futures Trading Commission (CFTC) reported that in the week ended Tuesday, large speculators (non-commercial traders) once again added to their existing record net long position, marking the fifth record in six weeks of trading. Longs now outnumber shorts by 2.5 to 1.
The second indication of extreme longs is in the cash market, where in a survey by Stone & McCarthy, portfolio managers now have their highest aggregate duration in three years, with duration at 101.2% of bogeys (typical range is 96% to 104%). I am obviously quite familiar with the axiom, "The market can remain irrational for longer than you can remain liquid," but these indicators tend to have a fairly short lead time, meaning it is more likely than not that the bond market will soon correct.
Had to update midday just to get this on for reference... A couple days after my mental stop price of 108'16 was hit intraday on the 10yr T-notes, I decided to stay short my T-note/bond position eventhough we had a close above 108'16 in the 10yr (closed at 108'18 I believe)..
Reasons are several:
1) With speculative longs in the 10yr being about 3 times greater than spec shorts (Commitment of Traders Report says spec longs=800k and shorts=300k. see here: http://futures.tradingcharts.com/cotcharts/TY), I had a good feeling that most of the recent surge upwards could not be upheld because of a lack of any more "long" firepower to fuel any more up surge.
2) Interestingly, the COT report for the 30yr did not confirm the same rate inclinations as the 10yr and had about equal longs and short (see here: http://futures.tradingcharts.com/cotcharts/US ) which tells me that the hedgies may have just been gunning the 10yr, since its the Treasury of choice to trade when betting on rates--all the more reason to think that the up surge was coming to an end.
3) FLEXIBILITY is the name of the game here folks--that's why I use mental stops rather than hard stops many times on mean-reversion, convergence trades. If the mental stop gets hit-then I go out and do additional research to see if the story has changed or not. Then I react-either taking the stop, staying strong, putting on more position-this is also another reason why I like to trade small-therefore, getting bigger doesn't cause me to turn into Mr. Amaranth, Brian Hunter, the Invincible.
Again reevaluating my research, and ever-changing supply and demand environment caused me to have the conviction to stay short and actually add to my short position, rather than stop out a at my original stop price. As we know, treasuries have sold off sharply the past 2 days, and i'm now looking to book partial profits on thes short positions...
I also read this similar analysis by the Macroeconomic guru, Tony Crescenzi, on RealMoney.com. Below is what he said regarding the excessive spec longs in Treasuries.
*********
Two reliable indicators suggest that the bond market is leaning heavily on one side of the boat, suggesting a possible correction soon unless the market continues to receive a dose of weak economic news.
On Friday, for example, the Commodity Futures Trading Commission (CFTC) reported that in the week ended Tuesday, large speculators (non-commercial traders) once again added to their existing record net long position, marking the fifth record in six weeks of trading. Longs now outnumber shorts by 2.5 to 1.
The second indication of extreme longs is in the cash market, where in a survey by Stone & McCarthy, portfolio managers now have their highest aggregate duration in three years, with duration at 101.2% of bogeys (typical range is 96% to 104%). I am obviously quite familiar with the axiom, "The market can remain irrational for longer than you can remain liquid," but these indicators tend to have a fairly short lead time, meaning it is more likely than not that the bond market will soon correct.
posted by Justin @ 9:23 AM
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