Tuesday, February 3, 2015

Fixed Income (2/3/15) Part I

We looked at the rising fixed income prices in mid-January with many contracts marking consecutive session same level highs – ‘Tweezers Tops’.  These mid-Jan highs were revisited in the last days and out the curve, bested as prices again reacted to falling equity and key commodity prices, tremulate geopolitical conditions and of course softer inflation news. 

Saved from what for a time appeared to be a likely revisit of the mid-October equity lows, buyers emerged yesterday lifting stocks by more than 1% in most of the domestic indexes.  Crude oil recovered and broke free from a consolidation that had in many instances over the last months preceded even lower prices.  Even copper prices firmed from levels not seen since 2009. 

Again many fixed income contracts are sporting bearish reversal patterns that may or may not prove lasting.  We would note that there was a strong jump in Eurodollar futures (and some Treasury futures) open interest in the price advance on Friday which would normally be considered a bullish sign.  In the rather light trade of Monday, open interest was removed in lesser size and prices did not continue to advance or support the bullish implications of Friday’s progress.   

Today I will look at some of the above and implications for fixed income contracts as we move beyond the shock from the pull of low global yields.   

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