With all the talk about the bond markets over the last couple of weeks, one would think that interest rates were headed back towards hyperinflationary levels. Most of the accompanying discussion has focused on how much of the equity marketâ€™s gains have been driven by the zero percent interest rate to which weâ€™ve grown accustomed. And finally, how much faith is being placed in the jobs number? Fridayâ€™s non-farm payroll number came in at 280,000, healthy by any measure. Given Fridayâ€™s tremendous volatility and the conflicting macroeconomic information, itâ€™s best to strip away the noise and see what the people moving real money are doing with theirs.
To that end, the Commodity Futures Trading Commissionâ€™s Commitment of Traders report showed that the commercial traders added nearly 30,000 contracts over the last week. More importantly, this is new buying in the forward September contract as the June Treasury Bond is expiring.Â Looking at the long-term Bond chart below, you can see that the 30,000 contracts added pushed their net position to its most bullish level since December of 2013. Also, notice that historically, this only brings their position to mid-level. This means thereâ€™s plenty more purchasing power behind them should it be warranted. Finally, the blue shaded areas show the effect that concerted commercial trader buying has on this market.
What does this mean?
As you can see, the commercial traders are typically early. Given the volume they move, their actions tend to be proactive rather than reactionary. That brings us to the current situation and the short-term chart below. The massive commercial buying clearly reveals that the consensus among the largest traders is that weâ€™re nearing a tradable bottom in the bond market selloff. The official buy signal has yet to be generated but, the criteria have been met and the hammer is cocked. We have positive commercial momentum in an oversold market. All thatâ€™s left is a reversal higher to trip our short-term momentum trigger.
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