Friday Chart Book
April 12, 2024
The plot thickens. Sometimes, I like to look at markets from the angle of a movie scriptwriter. One of my good friends and possibly one of the best natural investors I have encountered is in the film production business. He doesn’t know where the 10-year yield or SPX trades every single day, but he does have a great instinct, which he puts down to his ability to project a story.
The Fed’s story is now morphing from a near success and job done to a bit of an embarrassment, at least when considering their partial job is to foster price stability.
The Move index, a barometer for option-implied volatilities in bond options, had a 2 standard deviation move on Wednesday, which was the highest reading since Sep/Oct last year.
The momentum model celebrated the sell-off in bonds as it has been short from the beginning of March. What now? Looking at the below chart, we have now retraced 61.8% of the rally from 5%. I’m not big into Fibonacci levels, but it’s worthwhile considering it when zooming out.
As for the front end of the curve, a lot of the pricing has been taken out, as you can see from the chart below, which shows the 3-month change in front-end OIS adjustments across the G-10 space. 100 bps have been priced out in the US on an 18-month horizon.
When looking at option-implied probabilities, the picture has also shifted quite dramatically since yesterday. December 24 SOFR options are now attaching an almost 25% probability of no rate move scenario for the remainder of this year, which has doubled since the beginning of April.
The bond-long trade is getting more compelling by the day if you are leaning towards a more recessionary environment on the medium-term horizon. Read my post below, which I published this week ahead of the CPI print, for more discussion about when to time the long.
When to Buy Bonds 5
Here we go again. With bonds pretty much range-bound at post-GFC highs in yield, I thought it would be great to think about when it might be good to ask the above question again. I started the “When to Buy Bonds” series back in December 2022, when the US 10-year yield was trading with a 3-handle. Clearly, back then, the answer wasn’t a resounding “NOW!” but what has changed to give us more clues as to whether the ultimate buying opportunity is finally approaching?
Let’s now turn our attention to the charts. By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published. I have now also recorded a brief video tutorial, which you will find further below.
The full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s go!