As the markets absorbed a Fed Funds rate hike which was priced as a certainty in the Fed Funds Futures, bonds rallied after the announcement ahead of today’s announcement of the section 301 tariffs announced by President Trump.

To some, this may seem contrary to the fundamental fact that as rates rise the underlying interest rate products go down and vice versa.  However, given the markets concern regarding tariffs leading to a trade war, bonds rallied after this announcement and are strong, up over a point as of Thursday afternoon.  Buying the rumor and selling the fact could also be a factor.

For those with a longer-term outlook and the liquidity to position for it, the trade concerns and flight to quality in bonds could represent a selling opportunity as the Fed dot plot now includes numerous hikes over the course of the next two years.  On the other hand, should stock markets trade in the negative for the year with increased concern, the market may end up taking out recent highs and making higher ones.

To discuss ways to position for such market movements, especially through futures, options on futures and spread combinations of each, please contact me at your convenience.

30-Yr T-Bonds Jun ’18 60min Chart


Michael O'Donnell

Mike started his career in the markets on the floor of the Chicago Board of Trade as a trade checker for a local market maker in the Dow Futures pit. This led to interning with an independent introducing broker and going on to work with a number of market participants including: speculating clients, hedge clients, introducing brokers, futures commission merchants, commodity trading advisors, proprietary traders, trading educators, system creators, and a number of international financial market participants.