Do you remember in early September? I said, “if this happens, we’re in trouble”.
Well… it just happened.
Sound the alarm!
There are a lot of questions swirling in the market:
- Has doomsday arrived?
- Is this the beginning of the end?
- Will the U.S. ever recover?
Only time will tell…
But one thing is certain: We don’t have to stand around waiting for the carnage.
Options trading allows us to take advantage of market momentum regardless of the direction. And there’s definitely momentum in the market…
Protect your account and trade this volatility.
The Catalyst Flashing Red
On September 10, I told you the 10-year Treasury yield was the market’s focal point.
That’s the rate the government pays to borrow for a full decade, and it was climbing for weeks…
The setup was already fragile. Oil concerns tied to Iran were keeping inflation high, putting pressure on Fed Chair Warsh to consider more rate hikes. Demand for U.S. bonds was weak, and Treasury Secretary Scott Bessent was buying bonds by the truckload to hold down yields.
As a result, we were watching the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT), the 20+ year Treasury bond ETF. If it bounced, buyers were coming back and confidence in the U.S. was growing.
But if it kept diving, we were in trouble.
It kept diving…
TLT is down nearly 10% year-to-date, trading around $78.50. And in the last few days the selloff intensified.
The latest catalyst came last weekend. President Trump rejected Iran’s newest proposal to reopen the Strait of Hormuz, and oil rallied on renewed inflation fears.
As a result, bonds took a hit. The 10-year yield climbed to 5.20%, and the two-year rose to 4.90%. That comes after yields hit multiyear highs last week on hawkish comments from Fed officials.
The 5% level was supposed to be a wall. Instead, yields blew right through it, rising roughly 10% in a single month.
That kind of move is extremely rare.
How To Play The Bond Catalyst
I’m looking for a big price swing from major indexes and ETFs. Specifically the Invesco QQQ Trust (NASDAQ: QQQ) and iShares Russell 2000 ETF (NYSE: IWM).
At face value, the bond market might seem like a boring sector from a forgotten time. Bonds are usually regarded as safer investment assets than stocks, and they gain at a slower rate.
Therefore, individual traders and investors are usually more concerned with assets that have a potentially larger percent gain.
But the U.S. bond market is estimated to have a total value of $58 trillion. And it funds the U.S. government. As a result, a drastic change in the sector can easily ripple through the U.S. and the global economy.
Any day now, major indexes could react to this bond-market conundrum. And when they do, I’ll be ready with a reversion trade that takes advantage of the momentary price reversal.
Sign up for my next trade alert.
And keep an eye on the market, with relation to TLT/bond yields.
Stay Street Smart,
Jeff Zananiri
