Bond Market Rally and Euro Rout

When it’s all said and done, I think there’s a lot more pain to be had in the bond market than pleasure. But I’ve been looking for a rally in bonds in late summer after they got crushed in July and August. The chart below shows that rally may be in the offing this week, as December’s 10-year note futures closed up and outside of a range. The chart comes courtesy of John Kosar at Bianco Research. Bianco is an affiliate of Arbor Research and Trading, which provides outstanding research and data on the fixed income market, in addition to a whole suite of excellent research products. Here’s the chart: 10-YEAR BOND FUTURES BREAK OUT John says, “Thursday’s rally in Treasuries also resulted in a bullish breakout in December 10-year note futures and in cash 30-year T-bonds. In 10-year futures this breakout targets 113 16/32 as a minimum target, as long as support near 109-25 loosely contains below the market as support (see chart above). In cash 30-year T-bonds this breakout targets 4.91% as long as the 5.27% area contains as support.” If this rally in bonds is for real, traders should look to buy calls on IEF and TLT. The bond market may be getting a little boost from the Swedish scare in the euro currency market right now. Sweden is set to vote on entering the euro in less than two weeks. All the early polls show a “no” vote. IF that happens, you could easily see the euro lose 10% to the dollar in the next month. A no vote, coupled with France’s complete disregard of the stability pact limits on deficit spending shows you something: the euro is backed by the same asset the dollar is, confidence. And when that confidence falters, so does the currency. Aside from directly speculating in the forex or futures markets, an aggressive trader could put options on the Amex EuroTop 100 Index (EUR) or the CBOE-listed S&P Euro 100 index (XEO) . Strategic Options Alert subcribers...get ready to pull the trigger. INDEXES OF EUROPEAN STOCKS STAND TO BREAKDOWN ON EURO WEAKNESS