The 10 year Treasury yield has gone parabolic. It’s sitting just shy of 5.3% on a slope that looks like a launch trajectory.
That chart should strike fear into every trader. I’m getting long bonds anyway.
Bonds have sold off from 108. They hit the 102 handle today.
I think this is the trade of the decade. I’d even call that an understatement.
The S&P 500 barely notices any of it. The AI trade keeps ignoring the bond market, and Meta is still a total love affair on Wall Street.
Semiconductors rose about 1% today. The S&P 500 still slipped as Apple shattered the lower edge of its expected move.
Plenty of stocks are taking dramatic hits underneath the index. The advance decline line has been terrible, and a ton of names sit in bear market territory.
Tomorrow morning brings PCE and GDP data. PCE was Jerome Powell’s favorite inflation guide.
That combination has everything it takes to break this bond market. I think bonds react to the data first. The S&P 500 reacts after that.
Here’s what I laid out in tonight’s video:
- TLT has shattered its expected move two weeks in a row. Volume keeps rising with the selling, which I read as part of the bottoming process.
- I’m working an order to buy one more ZB at 102 and 30 ticks. Bonds were trading at 103 and 10 ticks. TLT shares work for traders who aren’t comfortable with futures.
- I’m also selling puts to get long bonds. The 5% yield has nothing to do with this trade. I may hold it for many months.
- The lower edge of this week’s S&P 500 expected move sits at 7636. Today’s low hit 7653. A breach tomorrow would matter far more than a simple touch.
- XLF has hit or exceeded the lower edge of its expected move for four consecutive weeks. I’m holding a bullish position there. It’s still taking a hit.
- Implied volatility is elevated in both TLT and the S&P 500 heading into tomorrow’s data.
I could still take some hostile short term pain on this bond trade. More downside is possible, possibly dramatic downside.
The S&P 500 won’t care until the bond market breaks. If tomorrow’s data shakes bonds, everyone will start paying attention.
