Discover more from Capital Flows
Trades: Closing Bond Trade
Thesis Timing Is Off
A couple of days ago, I opened a long bond trade. There were a number of reasons for it that I will break down. As of today though, the timing of the trade is off so I am stopping it out for a small loss.
Here is the original article:
I will take a moment and explain a little bit of the logic behind it. Going into the trade, we were primarily focused on the probability of a single rate hike in June. The market priced a reasonable probability of this and bonds began to bottom at the lower range level.
This week one of the FED speakers made a comment about two additional rate hikes which began to cause the forward curve to reprice expectations even more. Instead of “higher for longer” it was two more rate hikes.
At the time, the trade was a good risk/reward in confluence with some bigger-picture ideas I have laid out in the macro report (link). However, with the new information, I am updating the view. The goal in trading is to take small losses that are offset by large gains. I had the dollar trade (see link here) that helps pay for some of these small losses.
One final note from some comments and questions I have received from people. When you are moving into a recession, you can’t wait for it to start happening before betting on it. In every past recession, equities and bonds moved well ahead of the official recession. This is why you need to be somewhat preemptive in your positioning into these types of events while also keeping tight risk management.
When my strategies send another long bond or short equity signal, I will be sure to share it! As you know, I have opened the paid level of this Substack and will primarily be sharing trades and further analysis there. There is a new trade I am working on that I will be sharing soon!
Thanks for reading!