TLT: The new suitor in town; With his wingman the Yield Curve

The dollar starting to rally should be very concerning for speculators in risk assets. The bond market has been heavily shorted and a short squeeze might be in order here. Look at how they bought a the rips and sold the dips since April. Back in January of last year we saw this same price action. The CTA are gonna start buying if we see the bottom hold that would be proof. This past week we saw the bond auctions have surprisingly good numbers with primary and indirect buyers showing enthusiasm for bonds. This might be the catalyst that has shorts exiting their positions. Bonds will now revert back to their natural flow and go up due to the tight financial conditions. Banks still need lower interest rates to give them a better incentive to lend (M2 - M1). We see this in January when the bond market started to settle and the CTAs started to buy in. The market is not expecting low interest rates because commodities have risen recently but this will most likely not continue. Why is Gold falling with Dollar, it tells you something fishy is happening.


Yield Curve: the yield curve is the 10 year minus the two year maturity rates. Retail traders don’t ever look at it but, it’s telling a story. The Ten year yield is not going to go up as fast as, the two year. The two year is headed to zero. This is going to drive the yield curve up even more. Let’s not forget a rising yield curve has predicted every recession.

Ciao!!