GO
Loading...

Don’t Jump on the Bond Panic Wagon

Getty Images

For the 10-year Treasury yield, it's been a May to remember.

Over the course of three weeks, the 10-year yield have risen from 1.65 percent to 2.15 percent. Although not unprecedented, this type of movement is rare. It's important to remember the causes of the move before we take a shot at trading it.

The surge in yield began when the market began to consider the possibility of the Federal Reserve ending quantitative easing. The velocity of the move, however, was probably caused by a realization that an overwhelming number of positions were not adequately hedged. Most of the selling that we've seen in futures markets appears to be rushed, as many come to grips with the possibility of considerably higher rates.

That being said, markets do tend to be panic-driven, and often overshoot reasonable targets in the short-term. Although I do believe that a 2.40 percent yield is the medium-term target, there is the potential for a quick move back down to 2.06 percent yields.

For that reason, I am interested in buying the September 10-Year Treasury Note contract at current level of 129'11, with a short-term target of 130'01. On the downside, 128'18 is a reasonable stop-out level.

I should add, however, that this is a counter-trend trade, and a move to the objective level of 130'01 or the stop out level of 128'18 would probably flip me to a negative bias. After all, if we see 128'18, it will show that I have underestimated the power of the underlying move.

Jim Iuorio is Managing Director of TJM Institutional Services. Follow him on Twitter @JimIuorio.

Watch "Futures Now" Tuesdays & Thursdays 1p ET exclusively on FuturesNow.CNBC.com!

Like us on Facebook! Facebook.com/CNBCFuturesNow

Follow us on Twitter! @CNBCFuturesNow

Featured

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.