Bonds calm before the storm?

October 5, 2017 1:52PM CDT

30-yr treasury bonds have been in a consolidation phase over the past week, taking a break from the September sell off, in which 7 full points were shaved off the December 30-yr futures price. Currently, the Dec future is trading 152’08, with the recent high coming in at 159’16 on September 7.  The impetus for the selloff has been the Fed indicating that a reduction of balance sheet will commence in October, Feds speak that inflation may pick up suddenly entailing a more hawkish posture and a lessening of global tensions, particularly in the Korean peninsula. 

Friday morning at 7:30 central, the Employment Situation (we called it the Unemployment Report on the floor) will be released. Consensus estimates call for an increase of 100K Nonfarm Payroll jobs, with the unemployment rate staying steady at 4.4%. Average Hourly Earnings bears watching with the prior month being 0.1% month over month, and September consensus being 0.3%. This report will be the first to register effects from Hurricane Harvey and Hurricane Irma. 

If the report handily beats consensus, I’d say north of 200K, I would expect bonds to break out of this week’s consolidation to the downside. This would be a continuation of September’s bearish move, and could portend much deeper weakness in the coming weeks. If the report is a dud, and comes in below expectations, bonds should have a bounce and possibly move to the 154-155 handle. I would take any strength as an opportunity to establish short exposure. 

Something to keep in mind is that a JPMorgan Chase survey for the week through Oct 2 found that clients as a whole soured on Treasuries, with 44% holding a short position relative to their benchmark. That’s the most since 2006 and up from 30% the prior period. Speculative accounts show a record 70% were short! It is a crowded trade. Thus any bounce in bonds could spark a short covering rally sending bonds temporarily higher. Again, I believe the intermediate term prospect for bonds is down, it’s a matter of getting the right timing and placement of the trade, and taking advantage of any short term bounce to establish the position.


30yr T-Bond Daily Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.