A Reversal in the Debt Complex

Since establishing an interim top this has been a one way trade since the beginning of May where the long end and short end of the curve has 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 this price action means 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

10-yr Notes:

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 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:

U.S. Treasury Bond chart for August 23, 2013 - Debt
U.S. Treasury Bond chart for August 23, 2013

10-yr Notes:

10 year U.S. Treasury Note chart for August 23, 2013
10 year U.S. Treasury Note chart for August 23, 2013

March 16’ Eurodollars:

March 16’ Eurodollars chart - debt  complex
March 16’ Eurodollars chart

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As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk 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.


One response to “A Reversal in the Debt Complex”

  1. Thanks Randall for your reply.a0It helped me think thrgouh the idea of government being powerful (or not) in the way that its politics dictate. For want of a better historical model being ‘in power’ can mean a number of things and designing and regulating the banking system has been one of the things that modern governments have decided often to do (with a little help from their friends as you point out with US governments at the moment and their relationships with the likes of Goldman Sachs).a0But a government can be very powerful in more ways than current weak governments have been. For me the point of government should be that the likes of you and I can’t and won’t be at the top of the pyramid because that’s where government and only government should sit. But with revolving doors between banks and governments that is where ‘mere mortals’ have been allowed to sit instead of elected representatives and their unimpeachable nominees.a0So, for me government must be democratically powerful, but also must design the banking/finance system below it to be far less powerful than the power a government can itself wield. As such government’s role should be far more than it is at present the functional head of a corrupt banking system.a0Those are my politics, however can you divest any financial system in this case a pyramid of clearing processes of a necessary political dimension?a0And of course ‘political’ includes the question of who wields the power of the state as Marx would probably jump up and point out. But Keynes also never seemed to forget this reality either.