Bonds are doing funny things today. Normally when inflation surprises to the upside and the stock market is on the rise bonds will fall in value which pushes yields up. That last sentence's circular reference could be summarized as "When stocks go up, bonds should go down." The record inflation numbers should have just added more weight to that conclusion with a deeper decline in bond prices.weak trend
However, the "shoulds" of today did not pan out and yields are in decline ans bond prices are on the rise. That is a little weird and puts me on alert that the current trend in equities may be weaker than I thought. That has implications for currencies like the USD/JPY and USD/CHF that both have strong correlations with bond yields. It is worth noting that on the whole bond yields and equities have been diverging since 7/23 which may be one source of the current market volatility. Trader indecision is never a good thing for the trend.
There are a couple of ways traders may take advantage of this information. From a very speculative perspective, selling puts on the TNX itself could be a nice way to make some short term profits when a correction occurs and the index bounces off support. From a risk control perspective traders might start applying stronger hedges on long USD/JPY and USD/CHF positions. In the video I will detail my analysis.
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