Hey There Income Hunters,
Federal Reserve Chairman Jerome “J-Pow” Powell needs to put on a better performance this week than he did at the Wall Street Journal Jobs Summit earlier this month.
At that event, he seemed like a worried college grad interviewing for his first big job — and the bond market has been skittish ever since, with US 10yr yields nearing a move to 1.75% …
J-Pow also needs to address the massive supply in bonds and the banks’ inability to increase their holdings …
Check this out … TLT, the Treasury Bond volatility ETF (VXTLT) is actually above VIX (S&P volatility):
I have J-Pow figured out on this one … he has to throw his boys a bone.
Powell’s Only Move
You see, Janet Yellen still has a surplus of $700 billion in Treasury balances that will be drawn down by the end of this month …
The banks will be flooded with these reserves and will need to sell Treasury bonds to make room on their balance sheet.
All Powell needs to do is extend the banks’ exemption from the balance sheet restrictive Supplementary Liquidity Ratio. SLR is a Dodd-Frank regulation designed to force banks to hold a ratio of high quality liquid assets (HQLA) against balance sheet assets.
Now we know the banks are NOT Yellen’s pets … she’s all about Main Street not Wall Street…
However, I think she will step aside on this one and let J-Pow save some face.
How to Capitalize
The Treasury will auction $24 billion in 20yr bonds on Tuesday, so tech may get pushed down a bit into Tuesday afternoon … You see, 20-yr Treasury bonds were recently added to the yield curve and demand a higher rate to attract enough interest…
Heading into the FOMC meeting on Wednesday, this would be an ideal time to purchase Technology Select Sector SPDR Fund (Ticker: XLK) calls that expire on Friday.
Take a look at XLK Mar-19 132 calls:
Bring it Home
This is one of those pivotal weeks and if Powell gets it right the market will be all clear for a surge higher.
On another note, don’t miss Power Income LIVE every Wednesday at 9 a.m. …
I think metals are building a foundation from which to soar — and I have a few option strategies ready for you. Be on the lookout for an event link tomorrow!
Until then …
Live and Trade with Passion My Friends,
SOUNDOFF: I always love to hear from readers, so drop a comment or reply below! And be sure to follow me on Twitter @bill_griffo.