Bonds Are Ready to Rip 

From the Desk of Ian Culley @IanCulley

Will the Fed finally cut interest rates?

We can’t say for sure… 

All that matters is what the market thinks. And following Powell’s testimony this week, investors are increasing their September rate-cut bets.

Let’s review a few of our recent bond trades, as US treasuries could rip in the coming weeks.

Our entry point for T-bond futures was 117’27:

Price triggered a buy signal last month, but the breakout has been far from decisive.

If you haven’t taken a long position, you can move your risk level to the May 15 close, trading against  118’08.

Or, you can wait for buyers to take out 120’12 (the June 14 close).

Entry tactics aside, we’re targeting last December’s high of 125’30.  

The corresponding levels for the T-bond ETF $TLT have not changed:

We’re long TLT targeting 99 and 110 – but only if it holds above 92.

The 10-year T-note is holding above a former low-turned-resistance after buyers reclaimed the 109’17 level:

Our near-term outlook points higher. 

The rally should pick up momentum once buyers drive price above the two-year downtrend line. 

We’re targeting 113’06 and 117’00 as long as price holds above 109’17.

Remember, today’s CPI and tomorrow’s PPI prints will push a healthy dose of volatility into the markets – be prepared.

How are you trading the bond market these days?

Let me know. I’d love to hear your thoughts.

–Ian

Countdown to FOMC

The market is pricing the probability of the first 25-basis-point rate cut for the September meeting (seven weeks before the US presidential election).

Here are the target rate probabilities based on fed funds futures:

Click the table to enlarge the view.

This data is from the CME FedWatch Tool as of July 11, 2024.

Thanks for reading.

And as always, be sure to download this week’s Bond Report!