Market review 22.09.18

Yields and directly related markets

Hi all,

A short post today as I’m packing and moving to our newly renovated place (and sadly letting go of the apartment I’ve lived in for the past 8 years).

Bonds

Here’s a chart showing Eurodollars (short duration bonds) on an inverted scale. One of the best trades this year was to ride short-term yields higher with leverage.

Isn’t leverage risky? These are short-term bonds that move relatively little. But leveraging the short-end of the yield curve can work better than cash trades on the long-end. I discussed this back in March:

Brian G @alphacharts

2yr yields tend to have bigger and smoother swings than 10yr yields. But 10yr bonds have higher "duration" (sensitivity to change in yields). Leveraging 2yr bonds (via futures) to the same duration as 10yr bonds could work a lot better.

Commodities

Rising bond yields have put pressure on gold, which is broke 2yr support this week.

The force behind rising bond yields has been inflation, and one of the big components of that is oil. Can Brent Crude hold this major support?

Financials

If bond yields continue their ascent, perhaps banks outperform:

Keep in mind the big picture for XLF: It hit major support back in June.

There’s a Fed meeting this week, so expect it to be another volatile one.

Thanks for reading, got to run!

Twitter: @alphacharts.

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Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.