The rally in equity prices has been entrenched since the beginning of June. The bond market has been delivering a beta assistance and spread product has improved as Summer burned on. The Bond high of June 4 against the Sp low of the same date was breached with a negative divergence on July28. Long time subscribers know we like to see inside counter days after significant Unemployment data moves. (i.e. a further bond decline today would have signaled a terminal event)
The Treasury complex nested higher and frustrated day trading short sellers as equity moved slightly higher. Tuesday should be an important session giving a solid test of last week's lows. The day trader's grabbing of long dated fixed income on any and all SP downtics- esp. after a rally from 1257 to 1390- remains the tourist macro tribute to the persistence of memory.
The Knight Trading snafu has spotlighted the massive bear market in hold times that we spoke about in Cleveland in May. Strangely, few have applied the analysis to notes and bonds (or as we like to call them Capital Appreciation Notes-CANs) Whatever your opinion of Treasuries - and our disdain is well known - "beta" will not factor into the rest of the year the way it did from March. That Louis Bacon, one of the great FI Futures traders of ALL time, returns capital and opines on the uselessness of the T market days before Knight should not be taken lightly. There is an electronic mess coming to an FI market near you soon.
Finally, please continue to monitor the growth in GCF futures. I grew up with the CME product line but Lie-bor fraud and the birth of Treasury FRNs will pose a huge power shift in exchange traded products going forward.