Primary Dealers were wrong about the Treasury market in September, and it has cost them. They reached a small net long position in their hedged bond accounts just as the bond market was topping out in price terms. Since then, bonds have gotten crushed and yields have soared. The dealers aren’t net short enough to profit. Non-subscribers, click here for access.
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We had recognized the potential for a turn in the last report on dealer positions. 9/11/24- Technically Treasuries are near an important inflection point on the charts. Repo shows extended leverage among dealers. They are slightly short overall, which isn’t bullish for the big picture. They are leveraged to the hilt and they’re taking hits.
There’s no information to suggest that the young downtrend in bond prices and uptrend in yields will reverse anytime soon. A bullish turn may need to await the reimposition of the debt ceiling in early January of next year. That’s because if the Treasury follows past practice, when the debt ceiling is imposed, the Treasury will pay down T-bills. That puts cash back into dealer and investor accounts, enabling them to absorb Treasury coupon supply, and to buy stocks at the margin.
But until then, there doesn’t appear to be a catalyst in this data to cause a reversal in the bearish environment for bonds. I had worried about that being a catalyst for contagion into stocks, and we may have gotten our first dose of that today (October 31) with the S&P 500 dropping 108 points.
It looks as though the period from now until the beginning of 2025 will be a time of xxxxxx xxxxxx. We had a xxx xxxxx xxxxxx today. This suggests that it’s time to xxxxxx xxxxxxx xxxxxxxx xxxxxxxxx. I will look for those setups and report on them as they arise in the swing trade stock screens.
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