Notes From Underground: The Long End Revisited-

It’s Monday morning and the market-moving news is sparse. Bulls on equities are making a push to mark the indexes as high as possible to dress up their year-end performances. Markets are closed in London and other commonwealth countries, so volumes are even lower than last week. With that said, we can expect to see violent moves in some markets. (Every year brings some erratic moves as the markets look for vulnerable stops, so we urge caution on your size and patience so that as traders we can take advantage of any opportunity that arises.)

The DEBT markets have been under the most pressure as some traders rush to put on short positions ahead of year end in anticipation of continued weakness in the long end, as sovereign default issues are on the radar screen. Also, we have auctions this week bringing a wheelbarrow of new issuance to an already thin market. Today’s 2-year issue will be insignificant–it will be Tuesday’s and Wednesday’s of 5s and 7s that will draw our attention. As the yield curve continues to steepen, we know that the year end can bring the possibility of a sell-off, which would mirror the way the treasury market closed last year. Remember that the futures in the tens closed at 125.29 last year and the 30s at a breathtaking 138.26–levels that were not seen again as markets rallied on thin volume into year end. Will we see the reverse this year?

Back to the Futures –

Afternoon Market Check –

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