Something very important is going on here Valentine.
Yields rose mightily on 10yr.
treasuries (take a look at bonds if you really want to see some price action),
and are now confirming the pattern I made note of last week. http://financialfutures.typepad.com/kiss/2010/03/treasury-trading-update-20.html
. A number of factors have been cited – the main one being the inversion of the
10yr. swap vs. the 10yr. treasury yield spread. Other factors to note moving forward is the open interest
picture in April 10yr. put options which expire this Friday, and more
importantly the head and shoulders bottom on the 10yr. yield chart.
Weekly picture on yield which I have been watching for quite some time is forecasting an impending huge move higher in yields. The head and shoulder bottom pattern will need yields to move and close convincingly above 4% to validate the pattern. The seasonal pattern noted last week might be enough to penetrate the neck line however we could certainly go into a sideways pattern as the Government might find a way to contain yields from running to high to fast. The big strangle seller has been selling more 114/119 strangles vs. the June future today at 41/32nds or $640.63 each. They were selling it back in Feb. for around 1 and 8/32nds or $1,125 each. So they are not too worried yet about a possible run a way yield.
April option Open interest on the puts shown below.
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