I have been doing some research about the five and ten-year bond. I have observed that unemployment and FOMC announcements impact the direction of the bond. I have also been researching the yield curve. I have also noticed the SP500 moves in opposite direction of the bond. I wanted to ask any bond traders where I should be looking for possible changes of direction. Is there any other index I should be watching? Any other news releases to be concerned about. I would appreciate any help.
I can answer this question with a billion different variables. I'll give you an extreme over simplification for now (if you want to ask questions about the details feel free to ask);
1. 5-Year Note
* Governed by heavy interest rate direction and shorter end duration moves. Most of the time, if U.S. CPI is super hot or cold, the 5-year note will stomp in one direction because it's influenced by shorter-end curve moves as interest rate portfolios adjust
* Also, during FOMC decisions where clear direction may or may not be made on interest rates, the 5-year note will stomp as well
2. 10-Year Note
* The risk-free rate of the entire world.
* If there is a giant German 10-year Bund move, the T-Notes will be leading harder than the 5-year (during European session primarily)
* If there is a giant Oil move, the 30-year bond may move and therefore lag the 10-year note. The 5-year note will lag the least behind.
* If there is an S&P500 move, the correlation bots will usually hit into the T-Note and therefore the 5-year note will be a laggard
* If there is a giant currency move, the correlation bots will scramble into the T-Note again
If you are trading the FYT spread (5yr vs. 10yr) you need to consider the moving nature of both legs.
During FOMC and CPI, anything which shifts the agenda of interest rate direction then the FYT will move linearly in that direction
Also to note, if the T-Notes are busting a level outright there will be insane T-Note volume in that direction and the FYT will go the opposite of that direction as well as the T-Note order flow pops in
Let me just say that since the interest rate cycle is basically (in historical terms) sleeping right now, I would probably try trade the NOB spread instead (10yr v 30yr) because you have levels which are more vertical that hold and break, and you can get better risk/reward setups and less brokerage. Also, more idea generation.
But, to do a summary, at the end of the day, the T-note rules the world. Everything else is just a cuckold.