Like all, I am sure, the comments made by Bill Gross on CNBC today regarding bond direction alarmed me to the point of looking to see if there may be anything in our distant past to serve as a possible guide. After using Futuresource, as well as another chart service, I have found an interesting scenario that I would welcome a plausible explanation for as it may, if actual, be a long term signal that something is really wrong here... The US Treasury Bond (30 year) futures continuation chart shows the following data: December 21st 1999 the bonds closed at 111-02. December 22nd 1999 the bonds closed at 91-02. In other words, the data supports a drop of twenty full basis points in twenty four hours. Talk about trying to catch a falling knife! I looked at other markets like the doillar, euro, s&p and a few others to find that may have had similar volatility, one way or the other. There were no markets that seemed to substantiate this potential world shaking price change! I am sure someone is reading this and laughing saying.."this guy is nuts!! Obviously he can't read a chart..." Maybe! Anyway, the market volatility looked correctly represented after and before the "vacuum" of information of this one day. Was there some sort of contract size change that would have readjusted the actual price based on leverage? Or better yet, what happened here? I would appreciate anyone with access to this chart to look at it and set me straight. I don't mind being called crazy, it won't be the first time, but I would prefer to learn something here if possible...
A move from 111 to 109 would be 200 basis points, not 20. In any case, the structure of the market must have changed. On 12/21/99: USH0 : 91 1/32 USZ9 : 111 2/32 In other words, on the same day, the Mar bond closed at 91, the Dec bond closed at 111. My guess is the conversion factor changed as of the first contract of 2000, but I don't know for sure.
I thought this was the reason, but double checked to make sure. "Note that the drop in the futures price in for March 2000 contract is due to the change of the discount rate in the conversion factor (from 8% to 6%)." http://www.rci.rutgers.edu/~rchen/timing.pdf page 25