Wednesday, August 8, 2012

Price action post 11AM 30yr Fed buyback

So here is my take of the price action just following the Fed's 2bln 30yr UST buyback.  Going into the buyback, the bond was sitting at around 106-00, and ZN was hovering around 133-19/20 (just below the center of value at 133-20+).   Immediately after the buyback, the 30yr bond dropped to 105-16, and ZN dropped to 133-15.

The rational for this market move has 2 components.  First, the next risk event is the 24bln 10yr auction at 1PM, and so there is a community of market participants who were just waiting for the opportunity to sell the market.  They were selling the market to the dealers going into 11AM.    Second, the German bond market has retraced a few bps of today's move (8 bp rally at one only 5 bps), and US stocks are pushing up from today's lows (ES is 6 points above today's low).  So, globally, the forces that were pushing treasuries up have either receded, or reversed.  This indicates that up-trades in the long end of the treasury market can be sold for the time being (after-all, the next 2 risk events are the 24bln 10yr auction, and a 16bln 30yr auction).

From the ZN market profile perspective, the market is still tethered to the 133-20+ level, but the auctions (10yr today and 30yr tomorrow) will put downward pressure on the bond market for the next 24 hours.  It seems unlikely that we will have an opportunity to sell the top of the bell curve before today's 10yr auction.

more later...good luck trading....govttrader

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