Hey There Income Hunters,
I smell a rat.
That’s right, I have a sneaky feeling the Fed is playing games in the bond market..
There are so many reasons for bonds to be going down right now, and yet.
Here are a couple of examples:
- Forward looking inflation expectations are over 3% with 10-year rates at 1.55%. That’s a real rate of return of -1.45%, which is a new all-time low for this cycle — and it means 10-year rates should be higher.
- Russia announced recently that it’s ditching US assets for gold, Euros and Yuan.
Yet U.S. stocks and bonds are higher in price!
Sometimes this will happen in supply and then the auctions go terribly.
This could be one of those times.
We are right at the top of the range in the 10-year yield, so this is an excellent low risk/high reward spot to short iShares 20 Plus Year Treasury Bond ETF (Ticker: TLT).
On the Charts
We are right at the top of the short-term trading range in TLT.
In environment’s like this — high inflation, increasing supply, foreign selling and non-buying of Treasury securities — auctions never go well.
It’s possible the Fed is working with the banks by using additional quantitative easing (QE) to absorb inventory and request greater participation in the auctions.
We have to be aware of the Fed’s urgency to find ways to inject stimulus into the market while the money supply is drying up …
TLT Trade I am Putting on Today
I am going to take a flier today on TLT puts expiring this Friday.
The TLT 139-strike puts are trading at around $.60 for June 11 expiry.
I am going to hold a couple of puts into the consumer price index (CPI) number on Thursday when we also get a $24 billion 30-year Bond auction.
We could easily see a $2 down trade into Friday, which would provide a 150% return.
Not bad for a three-day trade …
Bring It Home
Nothing surprises me when it comes to the Fed.
There is tremendous pressure coming at them, especially from China and Russia as they have been buying up gold to back their currencies.
That has to put fear in our central bank.
The race for dominance as the world transitions to a new monetary system is heating up.
And I’ll cover that and much more during a LIVE event this week …
Register now to join me at noon EST on Thursday!
Until Then …
Live and Trade With Passion My Friends,