For the past 3 years the bonds have been a flight to quality trade. I do not feel that will change anytime soon. Something is overpriced. I will bet it is stocks, but they do not sit down. Maybe they will sit down after this impending rate cut. Buy the rumor, sell the fact?
Perhaps your right. However, the relationship between bonds and stock prices have been inverse the last several years. I feel it prudent to assume that relationship will remain intact. After all, what has changed fundamentally in the economy? We are in a economic situation not seen since the 30's.
Until I see competing venders selling apples from a pushcart on my corner, I 'll consider your 1930's statement to be a bit dramatic.
I use TC2000 for my end of day data. One of the chart tabs I use for comparison work. With whatever charting software you are using, put up the TYX and the DOW (or the SPX) in line format, and start with a monthly basis. Since approximately 3/98 they have been locked at the hip and that will shout out at you. Now flip to weekly and daily for a clear picture. On apx. 4/23 they began diverging big time for the first time in 5 years. It's very pronounced. Chuck
From Mar 13 - May sometime I read the correlation was r.65. It may have been up to April 23, I'm not sure. Anyways, the relationship broke apart big time as of the last FOMC date. Another rate cute began to be priced in to the Tsy. market and the deflation talk helped those who were wondering about a cut. As far as predictive usefullness I've never found or read anything that suggests Tsy yields offer any real reliable clues. The stock market however has a measure of predictiveness. So do corporate spreads to Tsy's. Both are pointing in the same direction. The question is does that predictive tool include an uptick in inflation before June or not? (Contract settlement.) The way this thing is moving I get the feeling that even if inflation prints are higher everyone will simply look to lower oil prices and a slow moving core between now and then and keep on buying.... Watch OI if it drops off or if news that should send it up yet the price stalls there may be a short term correction otherwise my thought is up. Trend buyers and convexity hedgers are both involved and likely prepared to increase after today. Both are big buyers that maybe weren't so involved to get things up to this point since the Mar 13 sell off.
Did todays sell off after the best possible PPI # one could expect and then second sell off after the Philly Fed data make anyone nervous? I don't have tons of market experience and am not sure if this is common practice in a bull run or a sign of weakness. - No more buyers so people start profit taking? I know something similar happened with the ISM release the first of the month.
ZB is the electronic version of the big contract. The corresponding mini traded on the A/C/E is YH. One interesting thing I have always wondered is - there is no emini A/C/E traded 2 or 5 year notes - WHY NOT? nitro
YH doesn't trade period. Trading notes is effectively like trading a mini ZB. Yea the curve moves sometimes but as a rule of thumb 1 ten year (ZN) trades like .67 of a bond. Lack of huge volatility, nor any institutional interest makes mini notes an unneeded product. The 5yr only has about a $300 range many days.
Got it. Thanks for the info. I have never traded a bond. I am looking into learning more about them and how to trade them... One thing though, I am not sure what you mean about YH not trading at all. I have a quote on my screen now and there is a bid and an offer for the Jun car: 118 7/32 x 118 18/32 - granted, 2x2. What I find amazing as I learn more about these things is how liquid the ZQ is. Right now, the June car 98.780 x 98.785, 215 x 235, and the May car, 98.745 x 98.750, 10 x 1336 ! nitro