Category: Interest Rates

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Interest Rates: Large Block Trades

Interest rate futures data continues to show the 10-Yr Note rate is expected to decline in 2024. In comparison to this data, products such as the 20+ Year Treasury bond ETF appear to be under accumulation by Market Makers with extremely large block trades observed crossing the tape since October 2023. This does not mean that the Federal Reserve will be the first to lower rates. Wall Street will be first in line to accumulate notes, resulting in lower rates as stock markets decline. When volatility increases in the stock market, the Fed will eventually step in to lower rates while the “Exchange Stabilization Fund” starts buying stock futures, as they did in December 2018.

Note that charts shown below are for research purposes only and are not a recommendation.

The cultural response of most investors is based on the assumption that “if somebody is buying, somebody is selling; not for a moment is it recognized that, in most cases “if somebody is buying,” it’s the specialist (Market Maker) who is selling; and if “somebody is selling,” it’s the specialist (Market Maker) who is buying.
Richard Ney, Wall Street Gang, 1974, page 150

Note that this information is for educational purposes only and not a recommendation.

Stock charts courtesy of StockCharts.com.

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Interest Rates: Futures Gap

On January 31, 2024 at 08:15 a.m. a futures gap was created between 4.028 and 4.03. This gap was filled when the 10-Yr Note rate moved up quickly on February 2, 2024, as noted in the first chart below.  A review of the weekly 10-Yr Note Non-Commercial Trader Net (Long-Short) futures trading data, shown in the 2nd chart, indicates the 10-Year Note interest rate is still expected to move lower in 2024.

Stock chart courtesy of StockCharts.com.

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Interest Rates: 10-Yr 2-Yr Broadening Pattern

The first chart shown below is the 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity (T10Y2Y) within a broadening pattern. As the T10Y2Y oscillates within its upper and lower trend lines it has consistently provided major turning points since March 1989. The angle of each red trend line is 79.47 Degrees from the chart 0.00 value line and provides specific timeline information between the lower and upper trend lines.

  1. March 30, 1989 (-0.45) – July 15, 1992 (2.65) = 1203 days = 3 years, 3 months, 15 days
  2. April 7, 2000 (-0.52) – July 29, 2003 (2.75) = 1208 days = 3 years, 3 months, 22 days
  3. November 16, 2006 (-0.19) – February 4, 2011 (2.91) = 1542 days = 4 years, 2 months, 19 days days

Based on this timeline data and the weekly 10-Yr Note Non-Commercial Trader Net (Long-Short) futures trading data, shown in the 2nd chart, there is an expectation that the 10-Year Note interest rate will continue to move lower in 2024.

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Interest Rates/Dow: 10-Yr Double Top

On October 10, 2023 it was noted that the 10-Yr note charts shown below carry similar underlying characteristics based on Non-Commercial futures trader’s positions. Structural similarities of the 2018 and 2022-2023 charts indicates a double top in the 10-Yr note is expected when the Dow moves up to 35,078 +/- 1%, as discussed on October 26, 2023, prior to moving lower.

Stock charts courtesy of StockCharts.com.

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Interest Rates/S&P500: Stock Market Decline Setup

On October 5, 2018 the 10-Yr note interest rate closed within range of the 127.20% Fibonacci value in the first chart structure shown below before turning and starting a decline. On October 5, 2023 the 10-Yr note interest rate closed above the 127.20% Fibonacci value in the second chart structure shown below. The two charts carry a similar underlying characteristic based on 10-Yr Non-Commercial futures trader’s positions shown in the third chart below. This type of interest rate positioning by futures traders indicates a quick move down (minimum of 5%) in the S&P500 is expected.

Similar readings were received in the 10-Yr Non-Commercial futures trader’s positions on June 29, 2004 and April 13, 2010. After June 29, 2004 the S&P500 dropped 6.2%. After April 13, 2010 the S&P500 moved sideways until May 4, 2010 when a “flash crash” occurred leading to a 5.6% decline in May 2010.

As of October 7, 2023, the S&P500 started a quick consolidation phase prior to moving higher. This could change quickly with a sharp decline, which appears to be what is expected by bond traders. Additional trading data will be needed to determine a change of direction.

Stock charts courtesy of StockCharts.com.

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Interest Rates: 10-Yr Note September 2023

On August 26, 2023, it was noted that the 10-Yr Note appeared to peak on August 22, 2023 with a close of 4.332. Based on the 10-Yr Note Non-Commercial Traders Net (Long – Short) positions and 2022-2023 comparison to 2018 shown below, the 10-Yr Note yield is still expected to move significantly lower in 2023.

Stock charts courtesy of StockCharts.com

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Interest Rates: 10-Yr Note August 2023

On July 7, 2023, data from the 10-Yr Note Non-Commercial Traders Net (Long – Short) chart reflected underlying trading data where the 10-Yr Note peaked on September 25, 2018 as well as indicating another peak was expected very soon in 2023. Based on timeline percentages shown in the 2018 and 2023 10Yr-Note charts below, it appears the 10-Yr Note peaked on August 22, 2023. Additional work will be needed to see what the impact will be on equity markets.

Stock chart courtesy of StockCharts.com.

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Interest Rates: 10-Yr Note 2023 Timeline

Data shown in the following 10-Yr Note Non-Commercial Traders Net (Long – Short) chart provides a partial background where the 10-Yr Note peaked on September 25, 2018 and is currently expected to peak within a matter of days. In addition to the Non-Commercial Traders chart, weekly engrbytrade™ 10-Yr note futures calculation results show the following dates where the 10-Yr note peaked before moving lower.

January 18, 2000, June 22, 2004, April 13, 2010, October 2, 1018 and the most recent is July 3, 2023.

The following 10-Yr Note charts are included to provide some perspective on the current timeline.

Stock chart courtesy of StockCharts.com.

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Interest Rates/Dollar: Velocity of Money

It was recently noted that the velocity of money and money supply have not been this low since 1932 when Great Depression unemployment was 23%, GDP growth was -13% and the annual inflation rate was -11% along with 1700 banks failing. The current situation appears to be much different according to the U.S. Bureau of Labor Statistics showing an unemployment rate of 3.7%, inflation rate of 5.3% as of May 2023, along with three bank failures in the first half of 2023, including First Republic Bank, Signature Bank, and Silicon Valley Bank.

A review of Federal Funds Effective Rate hikes since 2009 shows the current economic situation will change dramatically over the next three years based on the +4.86% change in the Fed Funds rate since March 2022. The Velocity of M2 Money Stock is expected to continue its decline, as it did between Q3 2006 and Q3 2009. This will include a prolonged decline in the Dow, S&P500 and NASDAQ along with a recession at best between 2023 and 2026.

January 1999 (4.63%) to July 2000 (6.54%) = +1.91%
June 2004(1.03%) to August 2006 (5.25%) = +4.22 %
December 2015 (0.24%) to April 2019 (2.42) = +2.18%
March 2022 (0.20) to May 2023 (5.06) = +4.86%

References:
Velocity of Money: Definition, Formula, and Examples
Money Supply Growth Falls to Depression-Era Levels for Second Month in April
Timeline of the Great Depression
Federal Reserve Bank of Richmond Economic Review; M2 and Monetary Policy September /October 1989, Robert L Hetzel, page 15.
Bank Failures in Brief – 2023

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Interest Rates: Preparations for 10-Yr Note Yield Decline

Futures trading data calculations indicate preparations are being made for a substantial decline in the 10-Yr Note yield over the next several months. This setup is similar to what occurred between September 25, 2018 and October 9, 2018. Part of this preparation was discussed in the June 3, 2023 post showing a 10-Yr Note Non-Commercial Traders net position chart illustrating how traders are continuing to move to extremes beyond what was recorded on September 25, 2018.

Stock charts courtesy of StockCharts.com.

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S&P500/Interest Rates: Fibonacci 300% – 327.20%

On May 18, 2023, it was noted that a significant decline in the S&P500 is expected over the coming weeks. The following 10-Yr Note Non-Commercial Traders net position chart update illustrates how traders are continuing to move to extremes beyond what was recorded on September 25, 2018. The following S&P500 charts also illustrate a consistent pattern within a Fibonacci range of 300% – 327.20% where a downturn is expected.

Stock chart courtesy of StockCharts.com.

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Gold/Dollar/Euro: Gold 2023 Decline

Intermarket futures trading data calculations indicate the U.S. Dollar, Euro and gold are in a structural position similar to where they were in October 2012. This configuration is expected to produce a drop in gold over several months as the U.S. Dollar and Euro move higher. The following charts illustrate this positioning.

Stock charts courtesy of StockCharts.com.

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Interest Rates: 2023 30-Yr vs 2018 10-Yr

Weekly Engrbytrade™ futures trading data calculations indicate a situation exists where futures traders are creating a 30-Yr yield descending triangle that is similar to the 2018 10-yr yield descending triangle shown below. A brief move upward in the 10-Yr and 30-Yr yield is expected. This will be followed by a decline during the remainder of 2023 as stock markets move lower.

Stock charts courtesy of StockCharts.com.

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Interest Rates: U.S. 10-Yr Note Yield Decline

On November 6, 2022 it was noted that weekly futures trading data calculations indicated the 10-Year note yield was peaking and in a structural position similar to where it was on November 6, 2018. The 10-Year note has slowly declined from 4.218 on November 7, 2022 to 3.373 on March 24, 2023. As of March 24, 2023 the 10Y-Yr note is in a similar position to where it was on November 16, 2018. Current weekly futures trading data calculations indicate the 10-Yr note yield is expected to conduct a decline similar to what occurred between November 2018 and September 2019. The 2022 to 2023 chart shown below provides a trend line of 18.25 degrees below the x-axis and overlays Engrbytrade™ markers based on comparable calculations from 2017. This indicates a steady decline below 1.5% is expected by the end of 2023.

Stock charts courtesy of StockCharts.com.

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