Bonds Survived

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Some serious tests for bonds this week. They survived.

by Brent Donnelly

October 13, 2023

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Current Views

Long 2-month EURMXN

18.70/18.20 put spread

~50bps EUR

off 19.16 spot

October 13, 2023

Bonds Survived

Bonds have held up pretty well this week under the weight of bad auctions, massive supply, strong PPI, strong CPI, and a big rally in equities. This is encouraging for my bullish carry view and EURMXN has survived pretty well, too. It’s good that we are back below those 19.00 highs from August and September and perhaps now we can retest the bottom of the range (18.00/18.20).

EURMXN hourly July 2023 to now

The 10-year yield chart held micro resistance at 4.70% and we are 4.50/4.70 for now.

US 10-year yield late September to now

The move in the USD is pretty amazing given the stability in yields and the gigantic rally in gold, but I suppose gold has lost its relationship with the dollar and seems to trade on its own these days.

Gold is making a run for the all-time highs vs. JPY again as you can see here:

XAU/JPY, August 2022 to now

My views have not changed much this week as I don’t think the data this week will sway the Fed as they have made it clear they feel that higher long rates are tightening financial conditions and further hikes are not currently warranted as they want to see how this latest repricing of bond yields plays out.

EURCHF

The positioning in CHF has become a problem of late as CHFJPY rips, and EURCHF is doing this:

EURCHF daily, July 2022 to now

The quadruple bottom at 0.9520/30 has cracked and the chart looks bad. I suppose we are back to CHF appreciation for now until it gets significant enough that the SNB needs to push back and go to a symmetrical or CHF-selling bias if the currency strength starts to become overly deflationary. For now, I think there could still be one more huge round of pain for CHF shorts.