In the last month 30-yr. bonds have appreciated just better than 4.25% lifting prices to their highest level in 3½ months. As one can see from the chart below, that has put prices of December futures at overbought status. I am using outside market influences to assist in this trade as I believe a rally in securities should cause a drop in Treasuries. The inverse relationship and flow of money should cause one sector to move higher as the other moves lower, the question will be if I’m on the right side with clients.
The Play
Aggressive traders could be outright short 30-yr. bonds but my favored play is NOB spreads, which means you would buy (1) 10-yr. note futures against every sale. The spread has widened to its widest level since the first week of August and I am looking for it to narrow in the coming weeks. As for risk, I don't see more than $1500-2000 of potential risk per spread with a profit objective of $3000-4000. Regardless of your standing if/when 30-yr bonds trade to between 148’00 and 148’16, I'd offset the entire position.
The Play
Aggressive traders could be outright short 30-yr. bonds but my favored play is NOB spreads, which means you would buy (1) 10-yr. note futures against every sale. The spread has widened to its widest level since the first week of August and I am looking for it to narrow in the coming weeks. As for risk, I don't see more than $1500-2000 of potential risk per spread with a profit objective of $3000-4000. Regardless of your standing if/when 30-yr bonds trade to between 148’00 and 148’16, I'd offset the entire position.