Sam Seiden
Independent Analyst
To many traders and investors, the Bond markets are complex and intimidating. However, if you’re looking for a very quality set of trading markets and/or if interest rates matter to you at all, understanding the bond markets is key for your financial well-being. In this piece, I want to help simplify the powerful and important Treasury markets for you and focus on three reasons why you may want to pay a little more attention to them.
Trading Income
Bonds and, most importantly, bond and note futures are fantastic trading and investing vehicles. You can trade the bond market through multiple channels including Futures, ETFs, Bond funds and more. The major Bond markets, such as the 10 Year Note and 30 Year Bond in the USA and the Bund and Bobl in Europe are some of the highest volume and most liquid markets you’ll find, which makes for very clean supply and demand levels and great trading, if you know what you’re looking for.
10 Year Note Chart – Daily
Are Interest Rates Part of Your Life?
Do you ever borrow money for a home or car? Do you have money invested in bonds? If you answered yes to either of these, you likely have a position in the bond market. Interest rates are so important to many people.
How would you like to have the ability to forecast where interest rates are going in advance with a very high degree of accuracy? This can have an enormous impact on your life when it comes to saving money. These Bond markets are the free markets for interest rates; this is where interest rates come from. For those who don’t know, when Bond prices go up, interest rates come down. When Bond prices come down, interest rates go up. This is where rates are determined. So, in the daily chart above, by knowing where the real supply and demand is we can time the change in interest rates and predict direction with a very high degree of accuracy.
As the chart above suggests, there is key supply above with demand quite a bit lower. This is key information for someone with an adjustable rate mortgage or someone seeking a high rate of return from bonds. For investors, we would look at supply and demand levels in the larger time frames. During the recent rally in price that you see on the chart, interest rates have been declining. When price reaches that supply level just above, it will likely fall from there meaning interest rates will then go up. This again is key information if you’re about to make a long-term interest rate decision.
Increase Your Probability
Most people are aware of the relationship with the Stock and Bond market. Most people think that when Stocks are going higher, Bond prices are going lower and vice versa. This is true some of the time but certainly not always. There are plenty of times when these markets are moving in the same direction.
When trading the stock market or the Index Futures, the Bond market can often help increase our odds of success. The rule we use in our live trading rooms is as follows: When the S&P, for example, is nearing a demand level, check to see if the Bond market is nearing a supply level. If it is, the S&P now becomes a higher odds buying opportunity. In other words, when both the Stock and Bond market are reaching opposing supply and demand levels and the same time, the odds of prices turning at those levels is very high. This, of course, assumes that you are quantifying supply and demand properly.
Properly forecasting interest rates has such a big impact on your money over your life time. If you’re about to make a big decision in bonds or a loan and need some help, send me an email with your situation. I’ll do my best to help you understand so you can make decisions that are truly best for you, not the person on the other side of your transaction.
Have a great day.
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Editors’ Picks
EUR/USD holds firm above 1.1900 as US NFP looms
EUR/USD holds its upbeat momentum above 1.1900 in the European trading hours on Wednesday, helped by a broadly weaker US Dollar. Markets could turn cautious later in the day as the delayed US employment report for January will takes center stage.
GBP/USD remains above nine-day EMA near 1.3650
GBP/USD recovers its recent losses from the previous session, trading around 1.3680 during the European hours on Wednesday. The technical analysis of the daily chart indicates a sustained bullish bias, as the pair trades within an ascending channel pattern.
USD/JPY remains heavy around 153.00 on firmer Japanese Yen
USD/JPY is sustaining its three-day rout at around 153.00 in the European session on Wednesday, awaiting the closely-watched US NFP report. Rising bets on Fed rate cuts keep the US Dollar depressed. In contrast, expectations that PM Takaichi's policies will boost the economy and allow the BoJ to stick to its hawkish stance bolster the Japanese Yen, weighing on the pair amid intervention fears.
Editors’ Picks
EUR/USD holds firm above 1.1900 as US NFP looms
EUR/USD holds its upbeat momentum above 1.1900 in the European trading hours on Wednesday, helped by a broadly weaker US Dollar. Markets could turn cautious later in the day as the delayed US employment report for January will takes center stage.
USD/JPY remains heavy around 153.00 on firmer Japanese Yen
USD/JPY is sustaining its three-day rout at around 153.00 in the European session on Wednesday, awaiting the closely-watched US NFP report. Rising bets on Fed rate cuts keep the US Dollar depressed. In contrast, expectations that PM Takaichi's policies will boost the economy and allow the BoJ to stick to its hawkish stance bolster the Japanese Yen, weighing on the pair amid intervention fears.
Gold sticks to gains near $5,050 as focus shifts to US NFP
Gold holds moderate gains near the $5,050 level in the European session on Wednesday, reversing a part of the previous day's modest losses amid dovish US Federal Reserve-inspired US Dollar weakness. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal ahead of the critical US NFP release.
US Nonfarm Payrolls expected to show modest job gains in January
The United States Bureau of Labor Statistics will release the delayed Nonfarm Payrolls data for January on Wednesday at 13:30 GMT. Investors expect NFP to rise by 70K following the 50K increase recorded in December.
S&P 500 at 7,000 is a valuation test, not a liquidity problem
The rebound from last week’s drawdown never quite shook the sense that it was being supported by borrowed conviction. The S&P 500 once again tested near the 7,000 level (6,986 as the high watermark) and failed, despite a macro backdrop that would normally be interpreted as supportive of risk.
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