Jump to content
Sign in to follow this  

Bonds and Gilts

Recommended Posts

Posted (edited)

@JamesIG,

Some traders on IG Community expect there to be a drop in major equities. They also think precious metal prices may go up. If this plays out then an important asset which often traders never seem to talk about or discuss is Bonds and Gilts. You may wish to set up a new section on the IG Community called Bonds?

If things do play out (there is no guarantee that they will) but if they and major stock markets decline and precious metals do increase in value then I think Bonds should see a price increase in such conditions as institutions and 'High Net Worth Individuals' (HNW) shift part of their capital into this asset class to protect their portfolios. Bonds are a 'defensive' assets that tend to rise in value in such conditions. The smart money tends to enter Bonds before the mainstream media talk about them. The smart traders will notice the trends before traders begin trading them. 

Have a look at the price action on some of the following:

  • US Treasury Bond
  • US 10-Year T-Note
  • German Bund
  • US Ultra Treasury Bond
  • US 5-Year T-Note
  • US 2-Year T-Note
  • Japanese Government Bond

I for one am keeping a close eye on the price action for these (above). I shall let the price action confirm my assumptions. Also Bonds as an asset class tend to be a lot less volatile than other asset classes so they should not be crazy daily swings like we are seeing on major indices right now. 

The one thing most of the above have in common is that they are all trading above the 20, 50 and 100 day moving averages on a '4 hour' timeframe. 

Edited by TrendFollower

Share this post


Link to post

Whilst the underlying trade may happen, I doubt there would be sufficient number of people who trade it for it to warrant it's own section. Volumes for this asset group are VERY low. 

It may be worth putting posts like this in the Macro Events section. If there are sufficient unique threads then we can consider it. 

https://community.ig.com/forums/forum/29-indices-and-macro-events/ 

Share this post


Link to post

If one looks at the German Bund chart then it looks very interesting indeed.

The trend is upwards and the price action is supporting this over the past 12 months which could possibly mean there has been a shift in capital and strategy for some of the largest players in the bond market.

The price is trading above its 20, 50, 100 and 200 day moving averages.

The German Buxl is also showing encouraging price action over the past 12 months.

The UK Long Gilt has spiked up over the past month and so too has the French OAT and German Bobl. If you then compare this with the 3 month Eurodollar price action then it begins to tell a narrative of what may be starting to happen with a shift in capital towards precious metals and bonds.

Once Brexit and US-China trade talks are concluded then certain economies around the world may begin to unravel and head towards recession. If this were to happen then Bond and Gilt prices may be a key indicator in terms of how they behave and react.  

 

Share this post


Link to post

German Buxl up 115 points today at the time of writing. 

There were some really big and noticeable price rises today on the Bond market. 

The institutions will be shifting and allocating a proportion of capital from the super rich and wealthy investment portfolio's into Bonds. 

I think we are seeing that shift gather pace. It has been gradually happening slowly over the past 12 months but I think as Brexit and political turmoil around the world takes shape then it will be more obvious and apparent.

I would expect the Precious Metals market to move in tandem and more specifically Gold but this is an assumption and I shall wait for the price behaviour to either confirm or reject such an assumption. 

Share this post


Link to post

In my personal experience when I see yields on Bonds declining it means that Bond prices are rising. This activity over a prolonged period can sometimes be a signal of a potential recession around the corner. 

UK Bond prices will be very interesting over the coming weeks and months. If this is to play out like I think it will then the price behaviour on Bonds and Gilts can be added to my 'decision making basket' so that it can assist me along with many other indicators as to when the market may begin to decline in anticipation of a serious recession. 

Share this post


Link to post

Apparently Italian Bonds (especially long dated over short dated) over value. 

Italy's Most Beaten-Up Bonds Are Place to Be for NatWest, HSBC

https://www.bloomberg.com/news/articles/2019-02-12/italy-s-longer-dated-debt-is-place-to-be-for-natwest-and-hsbc

I personally am interested in Germany Bonds and potentially UK and US Bonds should they teeter on a recessionary phase. Also I have more confidence in Germany, UK and US Bonds over Italian Bonds. With Brexit and turmoil in the EU another Greece is just waiting to happen. 

Share this post


Link to post

Keep a close eye on Bonds as this will be a useful indicator on expectations going forwards. 

@JamesIG, I don't know if there is a problem on IG's UK Spread Betting Platform but the US Ultra Treasury Bond was up over 120 points at an hour ago so around 6:00 pm UK time. Is this right? That would be absurd move in points!

I have to admit the platform is very 'clunky' today. It may be the trading volume with Brexit negotiations and the votes this week but the platform is shaky. 

Share this post


Link to post

If you have a look at the US Ultra Treasury Bond at the start of March and now then you will see that there has been a gradual increase. 

343753204_UltraTreasuryBondDecimalised_20190319_20_11.png.e03c2da6d9d7a89a5c0027a95ba7503e.png

The UK Long Gilt is showing a similar trend.

1881476803_LongGilt_20190319_20_12.png.bd2591d28b37c2d30bf0bea0daeb49fe.png

The German Bund chart on a 4 hour view shows a very interesting narrative. 

Bund_20190319_20_13.png.34a7a69d3182c412a2a53c7cc969f567.png

If the big institutions want to reduce their exposure to risk assets and they think there is going to be large drawdowns on equities, re-balancing in portfolios can occur thus increasing capital allocation in Bonds and Gilts. I find looking at the price activity on Bonds and Gilts a good indicator to the risk appetite out there for the big institutions. 

 

Share this post


Link to post

German, UK and US Bonds in general seem to be in the blue this lunchtime. Gold and Silver are both in the red but are not far and seem to be making a slow and steady rise upwards since the large correction last week around Thursday time. 

Share this post


Link to post

UK, US and German bonds still performing well in the blue. German Buxl was up over 100 points a few minutes ago. Gold and Silver both still in the red and not showing the same strength. The US Dollar may have something to do with this but it seems risk off at the moment. Major indices down but Bonds up more than normal so far today. 

Share this post


Link to post

Bonds have started another day in the blue and this time they are being supported by both Gold and Silver. I am wondering if there is likely to be seizmic shift in capital from higher risk (equities) to lower risk (Gold and Bonds)?

If one compared the price of Gold and Bonds against equities over the same period then it may help to indicate if this could be occurring.

The Brexit uncertainty and US-China trade deal risks still remain and whilst they still do I personally think it provides a positive platform for both Bonds and Gold. Now this may not translate into the price action as markets do not always behave as per textbook theory or in line with fundamentals or news.

However it is worth keeping a close eye on Bond prices as if they begin rising significantly then this could be a strong indicator for the future.

Share this post


Link to post

A lot of investors and traders ignore what the Bond prices are doing. There comes a point in a 'economic' or 'market' cycle where allocation to Bonds can not only reduce the risk to your portfolio but also provide steady returns when other assets are declining in value. 

At the time of writing this post - The US Ultra Treasury Bond is up 150 points. This is attractive from a day trading or short term trading perspective. It also becomes interesting from an investment perspective. I have come across a lot of traders who ignore the price action on Bonds because it is not 'sexy' enough for them. I have also come across investors who decide to allocate capital to Bonds when it is too late and they are enter at the 'end of the party'. Not only do they then lose part of their capital allocated to Bonds but are the 'dancing by themselves' on the dance floor!

The German Buxl is up 360 points at the time of writing. Obviously the news that came out of Germany recently affected the DAX and one can clearly see a flight for capital into Bonds. 

So Bonds can be a very interesting market for both investors and traders during times of economic uncertainty and economic instability.

Is anyone else investing or trading in the Bonds market on the IG Community? 

 

Share this post


Link to post
Posted (edited)

This is the current chart for the German Bund.

Bund_20190323_11_45.png.66a38943391b171ead874739bd88c48c.png

The above is the 'daily' chart. Now have a look at the weekly chart below.

Bund_20190323_11_46.png.32e8c49c1fca7d373e297bb0d3ce98f1.png

Now I am going to show you the monthly chart below.

Bund_20190323_11_47.png.47f6e1615a605c9ec24023a0acf71df7.png

Now you can begin to see from an investment perspective the capital growth available on Bonds. Bonds are traditionally and historically a defensive asset. There will be plenty of equity funds and investment trusts that outperform Bonds over the same period of time. However, we are entering times of uncertainty and therefore wise to have even a small allocation of Bonds in your investment portfolio. Now this could be anywhere as low as 1% or higher depending on your risk profile and tolerance. 

Bonds are also good to day trade on those days where there is an increase in market uncertainty, economic instability and basically an increase in panic!

Bund_20190323_11.46.png

Edited by TrendFollower

Share this post


Link to post

If major equity markets take a tumble then Bonds should perform strongly in this period.

It would not be unreasonable to think that over a 2 to 5 year period that Bonds outperform Equities.

Of course this may not happen but it would be wise for investors to allocate even a small percentage of their portfolio to Bonds. Some of the valuations seem very high to me, especially those in the US, and it is very unclear if those companies will be able to achieve the financial results necessary to keep such high valuations. 

Also for investors this strategy could be aligned to their risk management strategy within their investment portfolios. 

What I fear is that a lot of investors may only turn to Bonds once any major corrections in equities is firmly in place. By then the smart money has already been allocated to Bonds and the latter investors end up paying a high price for investing. They are also left till the end as the smart money will leave before them meaning they are likely to make a loss.

There will be some that may not agree with my sentiment but for those (they could be right and I could be wrong) I suggest just keeping an eye on the price action of Bonds. See what Bonds have been doing in terms of price behaviour over the last couple of years, what they are doing now and what they are likely to do going forwards. 

Share this post


Link to post

This article from the Financial Times is rather relevant to this specific thread.

Global investors make record shift into bonds

https://www.ft.com/content/57c94330-02b0-11e9-99df-6183d3002ee1

The increase in capital being allocated to Bonds has led to the price action that we have already seen. Those in early will have benefited. The point I was alluding to in the previous post is that those who enter later will not necessarily obtain the gains that those in the past have received.

Share this post


Link to post

IG have posted this today on the main screen under News and Analysis:

Trader's thoughts - The world economy’s health is looking worse than previously imagined

A return to a negative-yield world

The consequences of the bad PMI numbers were immediate and explicit. The yield on 10 Year German Bunds raced to its ignominious and long-awaited milestone, cracking into negative yield for the first time since mid-2016. If there is any evidence necessary that the global economy is at the end of a cycle, it’s that ****-bit of information. The rush into government bonds on Friday was ubiquitous, however, and has created some worrying price action. Conspicuously, the rush into US Treasuries has put the yield US 10 Year Treasuries to just above the current US OCR at 2.40%. Furthermore, Japanese Bond Yields have travelled further into negative territory itself, with the 10 Year JGB yielding -0.08%.

 

Rate cuts being priced-in across the globe

The falling yield environment is, of course, being driven by a pricing-in interest rate cuts in developed economies the world-over. Though directly caught in the fray on this occasion, as far as the disappointing data goes, the materialising prospecting of weak global demand has seen traders boost their bets on a US rate cut in the next 12 months. The implied probability of a cut from the US Federal Reserve by January next year leapt to almost 80%. The price action has led to a disturbing event in rates markets: the spread between 3 Year and 10 Year Treasuries has fallen to 0 basis points, inverting the yield curve between those two maturities.

Share this post


Link to post

There is a lot of talk about the yield curves and inverted yield curves on other threads and IG themselves have released material on this very matter. Below is an article which will explain it nicely. 

The US bond yield curve has inverted. Here's what it means

https://www.cnbc.com/2019/03/25/the-us-bond-yield-curve-has-inverted-heres-what-it-means.html

For some of you who are not familiar with Bonds, below will help to explain Bond Yield and Returns.

Bond Yield and Return

http://www.finra.org/investors/bond-yield-and-return

Share this post


Link to post

There is a possibility that the Bond markets are overreacting. There is also a small chance that speculative capital has arrived more recently too. One must remember that Bond prices have not just reacted upwards overnight and they have been creeping up gradually and for a while.

The media always reports once they have noticed the pattern / trend but not necessarily when traders have idenfitied the pattern / trend. 

However, just think if there was a recession in the US then what would the US Government do? Lowering interest rates would be one of the tools available to them. This notion is now being talked about and may be causing the price behaviour within the Bond markets.

Share this post


Link to post

I see @JohnDFX from IG has posted a blog entry in Market News today which is relevant to this thread.

Post-Fed; yield curve inversion; another reset in the Brexit timeline - DailyFX Key Themes

 

  • Like 1

Share this post


Link to post

From an economics perspective, when bond yields decline, the bond prices will rise and vice versa.

In my experience, when there is economic uncertainty, political instability and risk increasing then capital will shift into bonds. This will in my opinion lead to higher bond prices and bond yields declining. This is what the bond market has been experiencing and what we have all been witnessing. 

The article below is trying to alert its readers.

One by One, Global Bond Markets Are Flashing the Same Warning

https://www.bloomberg.com/news/articles/2019-03-24/aussie-10-year-bond-yield-drops-below-1-8-to-new-record-low

 

Share this post


Link to post

Apart from the Italian BTP and Italian BTS all Bonds available on IG's platform are in positive (blue) territory.

Share this post


Link to post

A lot of traders and investors avoid Bonds as they simply do not understand them or find them boring.

One of the key concepts to remember in relation to really grasping the value in Bonds is the inverse relationship between price and yield.

One must understand and try and appreciate how much a Bond's price may move when interest rates change. 

Trump is one of those US Presidents that is able to move markets through the news his 'Office' and himself directly release to the market. The latest which is the possibility of raising tariffs with China has seen US markets take a tumble and Bond markets rise. Now Trump may have no intention on raising tariffs with China (I do not know) but it is irrelevant as it is the news released to the market which then causes the subsequent price behaviour in certain asset classes.

 

Share this post


Link to post

What is interesting is to see how the German Bund's price has been appreciating since the beginning of 2018 till date (making a new high) during the Brexit chaos and the uncertainty within the EU.

Bund_20190507_19_12.png.e478ad8e4bdf02ec26973679dc8ce0d3.png

They say a picture tells a thousand words. Well a chart tells the narrative better than both a picture and words in this particular case.

Share this post


Link to post
Posted (edited)

Yes. I like to trade German Bund but IG stop its service for BUND. Any chance IG will provide German Bund trade again? 

 

I really need this instrument. 

Edited by Rubyred

Share this post


Link to post

@Rubyred,  not aware of any problem with Bund, seems to be working fine, it's listed in B&R (bonds and rates) on the left side margin.

image.thumb.png.12cbc84a2f4cddaa6dbb21acb539785d.png

Share this post


Link to post

Join the conversation

You are posting as a guest. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Member Statistics

    • Total Topics
      7,237
    • Total Posts
      35,866
    • Total Members
      45,866
    Newest Member
    fefcoweb
    Joined 18/08/19 18:33
  • Posts

    • @Mercury, I see you have started to look at Coffee. Excellent. If you look at both Arabica and London (Robusta) then one could argue that we are witnessing oversold conditions especially if you look at longer term timeframes like the 'Monthly' and potentially the 'Weekly'.  For me it is about identifying potential breakouts. We may see that in the days and weeks to come but right now at this moment in time both on the 'daily' are trading below 20, 50, 100 and 200 DMA's so it is still bearish for me. It is one I am monitoring closely.  Commodities can offer some excellent trading opportunities and produce some of the strongest trends. I do not use or apply EWT but if you can use it to effectively increase your chances of success which leads to a greater chance of profiting then all the best. 👍
    • I was watching a TV series called "This Giant Beast That is the Global Economy " starring and narrated by Kal Penn, actor in "House" and speech writer with Obama.  It doesn't really cover any new concepts, although there were a few interesting observation in their, like what the most important commodity in the global economy is... (I wont spoil it for anyone who hasn't seen it yet and wants to but it was not that obvious and is blindingly obvious in retrospect). One thing that did pop out that I though was relevant for the forum was that the price of coffee is way too low for farmers to make money.  The logical conclusion of this is that they will farm something else and supply will be curtailed and then prices will go up, the basic perpetual cycle of supply and demand change.  This very basic fundamentals proposition motivated me to look at coffee on the charts to see if there was a building opportunity and I think there may be.  I will preface my analytical assessment with the statement that I know very little about the coffee industry other than how to select a great bean type as a consumer and make a great flat white. If I look at the long term charts (Quarterly/Monthly) I see that coffee trades in a large range from about 4000 to 34000 at the extremes (or $0.40 - $3.40 per US pound if you prefer).  This seems to represent the classic economics supply and demand curve in candle pricing form.  With the available data we can see a set of cycles between the market top and bottom zones that in the main run fairly directly between the zones.  At this point my thesis would be that if you catch the market right at either extreme you can hold until price reaches the opposite end of the range (net 30,000 points or so).  For best results you want a straight run rather than one with large reversals. If I apply EWT to the chart I see a series of 1-5s and A-B-C, although this is arguably less relevant than for markets that do not operate between such obvious ranges as the key is obviously to look at trading when the market enters, or more correctly, then exits the range extremes zones.  Still it is interesting to see that the run up in the mid 70s was a motive 1-5 that still marks the high point in price.  After that I see a series of massive A-B-Cs culminating in a slightly lower high extreme price in the late 1990s than that printed in the 70s (still went into the market top zone though). This high then produced a 1-5 down to the lowers price on the chart around 2002.  The next move up to 2011 could be either an A-B-C or a 1-5 and the current move looks decidedly like an A-B-C.  If the 2011 move is an A-B-C and the current move is also an A-B-C then I would expect the current move to be a larger wave B that ends higher than the previous low and spawns a massive rally that ends higher than the previous high and is a 1-5 that goes pretty much straight up.  Either way the current move is and A-B-C so will end higher than the previous low and as most of the bear moves end inside the market bottom zone I can reasonable conclude that this move will end somewhere between 4200 - 8000. Let's look at a shorter term charts to see if we can refine this.  I have 2 weekly charts attached, the first of which shows the bearish move down from 2011 and the second of which zooms in on the final wave C of C.  In the first chart I can see a clear A-B-C structure to all 3 of the larger A-B-C wave form of the bearish move.  This confirms an A-B-C and not a 1-5 and also confirms that the market is in a final wave C of C, which will spawn that Bull market.  I also have a nice upper resistance trend line and 2 possible lower lines (both may be valid) with a lot of good current (green circle) and prior pivot (purple circle) touches. If we look at the second weekly chart the wave C of the larger wave C (from the wave B pink) is cutting a clean 1-5 pattern and looks to have just completed the 3-4 part of this.  The rally to wave 4 (blue) is in a-b-c, which you would expect of a retrace so the next bearish phase should be a final wave 5 that will mark the end of the overall bear market.  I would be looking for price to hit one of the lower channel lines but inside or on the 8000 level ideally.  Note all previous moves that did not make it to the extremes zone were not wave Cs (As or Bs) and all the 5 did.  So the conclusion to this is that all wave Cs or motives 1-5s penetrate the extremes zones of the range but As and Bs tend not to.  Also 1-5 waves tend to run hard and fast and make more extreme price tops.  The current move looks line a Wave C that would spawn a 1-5. Finally looking at the daily chart the current bearish phase looks to have put in a 1-2 (green) of that final 1-5 I am looking for.  I will be tracking this for the 3-4-5 and other signals to see if I can spot the turn.  As and when price breaks out of the upper weekly trend line resistance I think a strong bull market will be in play that could be a motive 1-5 that makes it into the extreme market top zone.  In all of the bull turns through there has been a strong short term retrace so the best strategy might be to let the turn happen and spot the initial retrace turn.  In these agri type commodities getting in on such a range extremes turn has to be the way to play it.  I will be tracking this one with interest for a while but it will require some time still to mature I think. 
    • I last posts around 2-3 weeks ago on this thread and I have seen Litecoin go down towards the lower $70's. It is currently trading at $76-77 at the time of writing this post.  Litecoin's chart looks pretty ugly. It is currently trading below its 20, 50, 100 and 200 DMA's which is very bearish.  Only really Bitcoin (significantly) and Bitcoin Cash are trading above their 200 DMA's on the 'daily.  Litecoin will need some very bullish news or a big move from Altcoins / Bitcoin otherwise it could easily fall down into the 60's.  After the halving event, it seems, Litecoin has been heavily sold. This capital may now shift to Bitcoin. That is my suspicion and assumption and the price action will confirm this. I will be interested to see if the divergence between Bitcoin and Litecoin increases. 
×
×