Summary
- Trailing take-profit stops triggered, taking out long equity trades, providing modest profits; we are now resetting the long trades; we may have seen a top in long-end yields for now.
- After this spectacular blow-off at the belly of the curve, and at long end yields, we expect at least a few days of moderation, even decline, in the yield uptrend.
- We expect oil prices to collapse as the inventory drawdown cycle ends, and with OPEC+ likely to push out supplies, and reduce significant spare capacity very soon.
- The Treasury Cash Balance has started to fall with some velocity over the past two days. The long-awaited TCB drawdown to less than $500 billion by end of June may have started in earnest. TCB will fall from $1.481 trillion today to less than $500 billion by end of June. Short term rates have already frontran the imminent sharp drawdown of the TCB until June. The TCB tends to lead Treasury Bill rates by about a week. The other significant thing is that the high frequency change rate of the TCB also impacts the high-frequency changes in the long bond yield. So we may be seeing the top in yields in this cycle forming.
- G5 Central Banks took a breather in growing their Monetary Base about a year ago. That pause is just about to impact equities and bond yields in a big way. Hence, the spectacle of central banks making a grab for long duration US govies. If the predictive power of the changes in global Quantitative Easing regime continues to exert significant impact on global risk assets, we could see a pause in the rise of global equities and bond yields very soon, and that holds true until June this year. After that, the reflation process continues.
FEBRUARY 25, 2021
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 8:15 AM
It was a non-event Asian trade for US equity indices, but the 10yr yield did a head fake again.
sparketFeb 25, 2021 3:31 AM
Huge head fake with the yield-equities reverse correction. Very surprising but also undeniable. I wonder if it’s merely a temporary phenomenon or more representative of a phase change as yields enter a new regime.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 8:17 AM
Fortunately, the equity futures ignored that sharp uptick in yields.
The Treasury Cash Balance has started to fall with some velocity. The long-awaited TCB drawdown to less than $500 billion by end of June may have started.
_TCB will fall from $1.481 trillion today to less than $500 billion by end of June._
_Short term rates have already frontran the imminent sharp drawdown of the TCB_
_The TCB tends to lead Treasury Bill rates by about a week_The other significant thing is that the high frequency change rate of the TCB also impacts the high-frequency changes in the long bond yield.So we could just be days away from a top in the 10yr yield.
What does that mean for equities?
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 9:12 AM
What could be useful in determining the bond-equity relationship at this time is to see how these two asset classes performed at this time of the year. We may think of the markets as random in the very short term, but since systemic liquidity is the overriding factor in there future valuations, then the seasonality of liquidity flows has a strong bearing on what the underlying trend of these assets should be, at this time of the year.
It may be that the weird divergences we have been seeing in the equity-bond relationship in the past week are no more than divergence in the seasonality of these two major assets.
Even just eye-balling this seasonality chart of the 10Yr yield (above) shows that we may still have a few days left on the uptrend.
The seasonality construct of the SPX (above) is more variable at this time of the year. But there is a tendency to dip, the rally to a top within two weeks.These two charts provide historic performance, which of course is secondary to what the current prime movers are impacting on asset valuations.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 9:58 AM
The TCB is an important prime mover for assets. There are other interpretations of what TCB SHOULD DO to assets, but intensive work PAM and Alan Longbon has done on this liquidity source, shows that yields do fall when the TCB levels fall.
Mr. Alan Longbon has just DMed me and said:
_"Just a thought about this unseasonal upward move in rates. This could be a PD manipulation to get rates nice and high before they come zooming down as the TCB empties out. A chance to make a lot of money very cheaply for them. Push it up short term, take a position and then let the TCB gravity bring it down in the normal way."_
_"As you noted in the main chat the TCB dropped a lot yesterday, down $70B in a day. New bond issues below the redemption rate and the stock of treasuries is dropping as money is deleted overall."_
Very well said Herr Longbon -- it is not beneath the dignity of the MOTUs (they have none) to do that so as to screw the most people, in the most efficient way.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 10:10 AM
The Primary Dealers started accumulating long dated Treasuries, as central banks grab long-duration paper
Primary Dealers have been increasing long bond positions, even as long term rates surge higher (bond prices lower)
Meanwhile, Institutions, CTAs, and Retail have been offloading bond positions as rates surged higher (bond prices fell)
_Note that the action of the Primary Dealers is exactly the opposite of what Institutions, CTAs and Retail do_
wisesunFeb 25, 2021 10:32 AM
MOTUs are Primarily Dealers? I had mistaken Institutions & CTAs as MOTUs. T_T
robert.p.balanFeb 25, 2021 10:33 AM
PDs and other Inv Bank hangers on that are not PDs -- those are the MOTUs.robert.p.balanModeratorLeaderOwnerFeb 25, 2021 10:37 AMFor one thing the G5 global central banks understand the impact of the growth and decline of their balance sheets.
That said, the G5 CBs took a breather in growing their Monetary Base about a year ago. That pause is just about to impact equities and bond yields in a big way (Herr Alan Longbon's fave chart). Hence, the spectacle of central banks making a grab for long duration US govies.
The Masters of the Universe (MOTUs) understand this too.
If the predictive power of the changes in global Quantitative Easing regime continues to exert significant impact on global risk assets, we could see a pause in the rise of global equities and bond yields very soon, and that holds true until June this year.
After that, the reflation process continues.
stephane.cFeb 25, 2021 12:50 PM
Hi Robert, do you expect oil to retrace until June after this rocket move?
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 1:03 PM
I am expecting oil prices to collapse any day now, SC.
john.derFeb 25, 2021 1:06 PM
Correlation between oil prices and ten year yield?
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 2:21 PM
Nice!
stephane.cFeb 25, 2021 2:31 PM
Thanks, I also expect oil to retrace hard
RM13Feb 25, 2021 2:35 PM
There is a lot of momentum associated with oil, so to change that dynamic momentum has to be burned, that will take time.. If that does happen, UCO will not only 2x fall, it will also decay..
robert.p.balanFeb 25, 2021 2:45 PM
That can change in a heartbeat, if OPEC+ decides to use their spare capacity. Russia is champing at the bits, and is probably cheating already.
RM13Feb 25, 2021 2:49 PM
Awesome to hear that insight.. Yesterday's oil price behaved parabolic, so this is the topping process, it's messy..
Robert, what about the price of natural gas, with reduced price of oil and incoming spring? Any possible trades there?
foleoFeb 25, 2021 3:13 PM
RM13 Do you prefer UCO over USO? Thought the latter tracked the oil price better, while the former has December futures roll in it
nichaFeb 25, 2021 3:22 PM
RM ...lots of talk about lower natural gas inventory for the later part of the year.
robert.p.balanFeb 25, 2021 3:45 PM
The situation you see in this Seeking Alpha article exists until late 2021. Natural Gas Gets Set For Prime Time: Tracking A Possible Rally Until February 2021
We believe that natural gas may be at the verge of a rally until early next year, optimal peak by February 2021.
I wrote that in late July 2020, and I got a lot trolling from ignorant idiots. I wanted to write a follow-up story about NG inventory constraints until year end, but I had second thoughts. It is very tiresome writing at SA now.
RM13Feb 25, 2021 3:55 PM
With this once in pentadecade cold storm, natural gas was overstretched to the upside, that was easy short, I'm going long via EQT and RRC, now and at other lows.. Into next winter..
UCO I would only look at when I can see a large fall off in oil prices, and buy puts out 2-3 months. Currently, no viable put candidates on UCO. USO has done much better job spreading the contracts over this year, but I think for ETFers, that's a good candidate for options.
fourscoreFeb 25, 2021 6:34 PM
would this be a good time to consider shorting oil, or wait for Opec's reaction.
robert.p.balanFeb 26, 2021 10:53 AM
If OPEC+ detects a weakening of the oil trend, they want want to cash in quickly, release more supplies while prices are high -- that will put pressure on oil prices. Note that oil prices fell sharply late yesterday.
stephane.cFeb 25, 2021 2:32 PM
stephane.cFeb 25, 2021 2:33 PM
I am monitoring the forward curve as milk on fire
gwizz1Feb 25, 2021 10:51 AM
In the past it appears that there is often a double top of yields before they decline
pa292Feb 25, 2021 8:49 AM
Robert : if rates go down again, what would be the effect on USD ?
robert.p.balanModeratorLeaderFeb 25, 2021 10:57 AM
On week to week basis, DXY will go down, if rates fall, and gold will rise.
stephane.cFeb 25, 2021 5:21 PM
10-year yields are too high imho and this move is either a change of character or an overshoot
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 4:29 PM
PLEASE MODIFY THE STOP THRESHOLD OF LONG YMH1 TO BREACH OF 31,800 (FROM 31,840), GTC- 4TH
*This order was filled.*
*YMH1 -- SOLD 288 TO EXIT SCALPER LONGS (BOT - 31,563) AT 31,798, FOR ALL FUNDS, INCL TRACKER, EIGER*
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 4:46 PM
PLEASE MODIFY THE STOP THRESHOLD OF LONG RTY TO BREACH OF 2265 (FROM 2259).
*This order was filled.*
*RTYH1 -- DONE AT 2264.70 SOLD 144 CONTRACTS RTYH1 FOR ALL FUNDS, INCL TRACKER AND EIGER*
User.49362576Feb 25, 2021 5:48 PM
GE, Robert. Could you clarify if PAM continue keep NQ sell order ( all PAM SELLS 288 CONTRACTS NQH1 AT DOWNWARD BREACH OF 12,920 (13,000) (FROM 13,080) AS SHORT HEDGE FOR NQ LONG SCALPERS, GTc -- ALL FUNDS) ? Thanks.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 5:52 PM
I was thinking of lowering it somewhat.
PAM SELLS 288 CONTRACTS NQH1 AT DOWNWARD BREACH OF 12,920 (13,000) (FROM 13,080) AS SHORT HEDGE FOR NQ LONG SCALPERS, GTc
*Modify to:*
all PAM SELLS 288 CONTRACTS NQH1 AT DOWNWARD BREACH OF 12,850 (FROM 12,920) AS SHORT HEDGE FOR NQ LONG SCALPERS, GTC -- ALL FUNDS INCL TRACKER AND EIGER
*Looks like equities and yields are back at having positive covariance again.*
john.derFeb 25, 2021 6:17 PM
7yr bond auction at 13:00NYT. Final one for awhile.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 6:35 PM
Here are two possible EWP schemata for NQ
(1) This suggests completing a large irregular -- or Wave 5 of five waves.
(2) We have seen the irregular already completed , and we are looking at base building (small wave 2) then a wave 3 rally.
It make a difference where you put the hedge -- the best is below the previous low. We revise the level of the short hedges.
PAM SELLS 288 CONTRACTS NQH1 AT DOWNWARD BREACH OF 12,850 (FROM 12,920) AS SHORT HEDGE FOR NQ LONG SCALPERS, GTC -
all PAM MOVES SHORT HEDGE TRESHHOLD AT 12,700 (FROM 12,850) FOR ALL FUNDS GTC.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 6:53 PM
Please further modify the ES short hedge order's threshold from 3840 to 3825 -- for 500 contracts of short hedges.
all Modify the ES hedge threshold further to 3775 from 3825, for all funds
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 7:02 PM
Whoa!!
Looks like auction did not go well.
john.derFeb 25, 2021 7:14 PM
Beginning to look like a bankster spoof.
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 7:20 PM
Treasury Yields Explode After Catastrophic, Tailing 7Y Auction
This is bad
Yeah -- but it was just an auction .. the MOTUs manufactured this one.
This is the last long bond auction in a while -- now the MOTUs have probably bought enough govies at give away prices.
foleoFeb 25, 2021 7:27 PM
Good time to enter long TMF trade?
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 7:31 PM
You can start with reasonable risk amounts yes, looks like the blow-off phase. I will wait to see what happens at the close..
Brent.ChavezFeb 25, 2021 8:18 PM
Robert.p.balan it was a disaster in what since? No buyers, which drove up yield and dropped price?
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 8:39 PM
Bid to cover -- amount of bid in Dollars to the total amount being sold in dollars -- was worst since 2009, looks like.
QuaziFeb 25, 2021 9:39 PM
So we re even higher @robert.p.balan. What is PAM's position on tomorrow? Thank you ...
robert.p.balanModeratorLeaderOwnerFeb 25, 2021 9:53 PM
all PAM MOVES NQ SHORT HEDGE THRESHOLD AT 12,600 (from 12,700) FOR ALL FUNDS GTC.
Quazi -- I WILL TELL YOU TOMORROW ÂFTER WE HAVE SEEN WHAT HAPPENS IN ASIA.
FEBRUARY 26, 2021
GOOD MORNING EUROPE / GOOD EVENING WEST COAST
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 8:48 AM
It does look like the yields blew off in late NY trade yesterday.
10YR YIELD
We can expect more yield declines later today -- that should enable equity futures to form a more stable base.
NQH1
The NQ, even the YM, are forming descending wedges -- wave 5 in a five wave decline.
YMH1
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 8:57 AM
That may also mean the short hedge threshold for NQ at 13,600 may be too close, and so we move it out of the way-
PAM MOVES NQ SHORT HEDGE THRESHOLD AT 12,600 (from 12,700) FOR ALL FUNDS GTC.
*Modify to:*
all PAM MOVES NQ SHORT HEDGE THRESHOLD TO 12,500 (FROM 12,600), GTC -- FOR ALL FUNDS.
spitzbubchenFeb 26, 2021 9:03 AM
GC is getting close to your 1750 hedge threshold. Do you also plan to move it down?
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:03 AM
Yes, Mr. Bubchen -- will do.
PAM SELLS 2,000 CONTRACTS GCM1 AT DOWNWARDS BREACH OF 1750, FOR ALL FUNDS
*Modify to:*
all PAM SELLS 2,000 CONTRACTS GCM1 AT DOWNWARDS BREACH OF 1710 (from 1750), FOR ALL FUNDS -- EXCEPT TRACKER AND EIGER
andrewsrFeb 26, 2021 9:07 AM
Robert, how about the ES hedge threshold, do you plan to move that down further too?
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:16 AM
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:17 AM
Definitely andrew, we will.
Modify the ES hedge threshold further to 3775 from 3825, for all funds
*Modify again to:*
all PAM MODIFIES THE ES HEDGE THRESHOLD FURTHER TO 3760 (FROM 3775), GTC -- FOR ALL FUNDS INCL TRACKER AND EIGER
andrewsrFeb 26, 2021 9:23 AM
Ok thanks Robert
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:24 AM
We will reset long YM longs at breach of the descending wedges -- buying the breakout seems a better strategy as it should coincide with declining yields (hopefully).
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:27 AM
The 2021 Treasury Cash Balance continues to fall, and we are at a period in its seasonality when it starts falling with accelerating velocity.
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:32 AM
All the upside action is in the long end. It really does feel like yields have blown off.
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:38 AM
robert.p.balanModeratorLeaderOwnerFeb 26, 2021 9:39 AM
Looks like we have a breakout -- best time (and level) to put in a bid is when YM "tests" the trendline (wave 2 testing the base). We will put in tentative longs.
all PAM BUYS 144 CONTRACTS OF YMH1 AT 31,265, LIMIT OR BETTER, GTC -- ALL FUNDS, INCL TRACKER, EIGER
all MODIFY THE YMH1 BUY LEVEL TO 31,300 (FROM 31,265), LIMIT OR BETTER, GTC -- ALL FUNDS, INCL TRACKER, EIGER
(To be finalized after NY Close today, Friday, February 26).
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Year-to-date performance: 860.27%, on 888-98 win-loss trades.
January 2021 spreadsheet here:
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