Friday, August 10, 2012

Change in sentiment- How about actual flows in the Treasury market

I don't normally repeat what others have said...but reporting these flows matches perfectly with what I said yesterday afternoon

RATES: Overnight Volumes ‘Solid’: CRT
By Alexandra Harris

Aug. 10 (Bloomberg) -- Cash trading at 152% of 10-day moving average vs 115% TY, CRT strategists David Ader and Ian Lyngen write in note.
●    Flows reported by CRT:
●    “Decent and widespread buying” noted in Tokyo
●    Hedge fund buying in 10-yrs
●    Official buying in belly
●    Hedge fund selling in 5-yrs
●    “Some cross market buying” in 10-yrs vs other countries

Now lets take a quick look at Market Profile

In ZN, as shown above, 133-24 seems to have established itself as the new center of value, and 133-20+ should represent "too low" in the market.

More importantly, an under-supply condition has asserted itself (as i predicted it would yesterday afternoon).  This is the most powerful pattern recognition tool we have in trading the bond market (other than inside information of what the Fed / Treasury will announce).  An under-supply condition means that more product (bonds) has been removed from the market at the price level from which it was bought, than the market can absorb.  This results in vertical price movement until the net-short position market participants can alleviate the under-supply condition (this means more institutional buying).

Remember folks, Market Profile and Bell Curve Trading are all about understanding supply and demand in the auction process, which is what the market actually auction.

This again argues for buying dips in treasuries, as the under-supply condition can take the market higher across price, volume and time.

good luck trading....govttrader out...


  1. Nice bounce. How long do you expect this to run? Equities look a little top heavy here.

  2. Usually, these undersupply conditions last anywhere from 1 to 2 trading days. But, if you combine that with the cyclicals (from 30yr Bond auction after a concession (like we just had) to month end extension during periods of QE (like we are in now)...the market will tend to higher prices for the next 2 weeks (with fits and starts of course). I don't expect to unwind this trade today if that is what you are asking.