Commodity Chart Of The Day
Weekly NOB Spread
(click image to enlarge)
This spread has performed seven out of the last nine weeks. The concept is to be long 30-year bonds and short 10-year notes. Your directional bias should be in the direction of where you perceive 30-year bonds will trade. 30-year bonds move more than 10-year notes, so if correct in direction, a trader makes more in bonds than he/she loses in notes. If wrong in direction, notes should cushion the loss to some extent. Another added benefit -- by instituting a spread, the margins are decreased and likely, the volatility, versus an outright futures decline.
Every 1 basis point move equates to a gain/loss of $1,000 per spread. So looking at the chart above, off the lows there has been approximately a $5,500 advance. This has lifted the NOB spread above the 50 day MA for the first time on a closing basis on the weekly chart since July 2011. Buy dips and use the above Fibonacci levels as your targets.
Based on the Fed's actions, keeping yields low for the foreseeable future should force investors to take risk and allocate monies elsewhere. That involves selling Treasuries, which I interpret as a bearish development…trade accordingly.
Risk Disclaimer: The opinions contained herein are for general information only and not tailored to any specific investor's needs or investment goals. Any opinions expressed in this article are as of the date indicated. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.