There is a layup of a trade setting up here in the wake of the escalating crisis in the Ukraine. Since January 2, the Treasury bond market (TLT) has enjoyed a massive 8 point rally, taking the ten year yield from 3.05% to 2.60%.
By shorting Treasury bonds here, you are betting that the yield doesn?t drop below 2.48% by March 21, an eight month low. That is only 13 trading days away.
Given a synchronized global economic recovery and rising US corporate earnings across a broad range of industries, the chances of this are minimal.
To get below this level in yields, you really need an out and out shooting war in the Ukraine, a complete nonstarter. Don?t forget that we have a February nonfarm payroll on Friday, which in recent months have been relentlessly disappointing. Therefore, I expect bonds to go nowhere for the rest of the week.
This is all a warm up for a much bigger trade that I am planning, a 10% weighting in the (TLT) June $108 puts outright, which last traded at $2.75. If the (TLT) returns to the $101 bottom, this could be an easy triple, and one of our biggest trades of the year. But you don?t want to consider this until we go over the top on the (TLT) on the charts, and the downside momentum resumes.