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It has been a long wait for the bears of US Treasuries. But now it does finally appear as if there is light at the end of the tunnel. Today yields on the US 2yr broke to a multi-week high. While yields on longer dated maturities have yet to do so it won't take much for key resistance levels to be broken.

Yield of US 2yr Treasury

Yes this may all sound rather technical which is strange coming from me given that I am more of a fundamentalist. However, one cannot deny that once key resistance levels are broken on US Treasury yields (3.2% and 2.1% on the 30 & 10yr treasuries respectively), a wave of sell orders will likely be triggered.

One can argue that you should not be fighting the Fed in their efforts to keep treasury yields from moving higher. However, if there is one thing that I have learnt over the last 17 years as a professional trader no one is bigger than Mr Market, the Fed included. Key resistance levels on US treasury yields will be broken over the coming days and given how overweight the average Mom and Pop is in the US treasury market (not to mention financial institutions) the wave of selling pressure will likely surprise even the treasury perma-bears!

Now this is where it gets exciting. I'll go so far as to say that no one is positioned for an explosive move in the US Treasury market. I say this because implied volatility of treasury options (as per the MOVE Index) is more or less at extreme lows. Having a bearish view is one thing, applying that view is something else.

MOVE Index

Given how:
  • crowded the US treasury market is on the long side,
  • growth in the US economy is showing every sign of surprising to the upside,
  • no one is prepared for a dramatic move in treasuries,
It is difficult not to get too excited about going against the crowd and positioning for major downside in US treasuries over the coming weeks.
Source: Cracks Appear In The Treasury Market

Additional disclosure: Long puts on US 10yr Futures