RJO FuturesCast

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Interest Rates

U.S. Bonds On Fire

Posted 09/04/2019 11:52AM CT | Greg Perlin

The bonds have been on a tear for the for the last few months with the December contract hitting contract highs yesterday at 166.23 on continued unrest in Hong Kong, ongoing tariffs and a weak PMI reading yesterday that came in at 49 and change.  Any number that comes in below 50 is considered a contraction in the economy. Overnight, we saw some decent economic news out of Europe which has pushed yields up and spilled over to the U.S. bond market. In general, the world economy is no doubt slowing, with many countries near or at recession levels, and at the same time, the U.S. is acting far better, in fact, some would argue that data has been on the strong side as of late. A key number to watch this week is the monthly employment number. Most have predicting in the last few months that the non-farm payrolls would be slowing down, but we have actually seen very good numbers. So, Friday’s number will be watched closely as many doves are hoping for a bad number, so the fed will continue to cut rates. One reason the bonds have been so strong the last few months is that the European yield curve is negative. If one were to put money in a European bank for let’s say three months, they would lose money as you are basically paying the bank to hold your money because rates are negative. So, many investors overseas are putting their money in U.S. treasuries, despite the low rate in the 10-year note, which is around 1.46%.   The yield is very low but at least it’s not negative.

30-Yr T-Bond Dec ’19 Daily Chart
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Greg Perlin

Senior Market Strategist
Greg is a former Chicago Board of Trade member. He was an independent floor trader, pit broker and floor broker with Cantor Fitzgerald. Some of his clients included traders from Morgan Stanley and Lehman Brothers. He also acted in the capacity of desk manager for the morning trade desk. Greg was part of the elite Lind Plus Division for 10 years before joining RJO Futures in 2011.
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