Is This the Top for the Long Bond?

Bonds yields have reached all-time lows across the globe. By some measures rates have reached five thousand year lows. Markets like Germany have seen negative real returns on their ten-year paper. When will it come to an end? Finding an entry somewhere near the turning point can potentially become a multi-year trade.

Rumors of an ECB taper have sent longer-term paper higher in recent days giving a possible signal for the shorts. One thing bears can do is look for technical triggers to pull them into trades. Technical setups on a longer time frame, weekly or monthly, will not come along frequently so it may make sense to be on high alert when they do manifest.

Bonds (December futures contract) rallied strongly from the beginning of the year, retraced, and seemed poised for a new leg up. The backdrop for a continuation trade to new highs was a high-probability trade. That trade is now failing. When a high-probability trade fails, the implication is for an opposite reaction of greater magnitude. 

Craig Garbie, Market Taker Mentoring, Inc.

Trader Education