Since establishing an interim top, this has been a one way trade as of the beginning of May where the long end and short end of the curve has each gotten hit. 30-yr bonds have depreciated 12%, 10-yr notes are lower by 7% and the March 16’ Eurodollar futures are lower by 1.3%.
Lets quantify this: What are the margins for these three instruments and what does this price action mean for (1) futures contracts? Please do not think I am implying that all my clients got short and stayed with this trade for the last 4 months. That is not the message I am trying to convey.30-yr Bonds:
- Initial margin - $2,750
- Maintenance margin - $2,500
- Close to close for 5/2 to 8/22 - $17,875
- Initial margin - $1,623
- Maintenance margin - $1,475
- Close to close for 5/2 to 8/22 -$8,609
- Initial margin - $880
- Maintenance margin - $800
- Close to close for 5/2 to 8/22 -$3,050
From current levels, I think we get a rebound in the debt complex and I have put three charts of the instruments I trade in this complex below. I expect a trade higher in the coming weeks lifting futures to the resistance levels (the red horizontal lines) I drew in each chart. I open the idea of a rally and will use higher trade to scale clients into bearish trade going into the FOMC meeting in mid-September. My favored play remains trading the short end of the curve; '16 Eurodollar futures and options.
Over the next several years I do expect the path of least resistance in the debt complex to be lower, so traders should use an advancement in the coming weeks to exit remaining longs and to gain bearish exposure. 30-yr Bonds: 10-yr Notes:March 16’ Eurodollars:Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors.
You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.