Economic Tipping Point...GFC 2.0? In this video we discuss;
Bond Market Signal using the 2 year yield.
Is the 2 year yield giving us a 2007 / 2008 signal?
We look at the correlation of the 2 year yield vs SPX
We analyze the forward expectation of interest rate projections.
Observe and dissect last weeks economic employment data.
There will be plenty of opportunities in this next phase of the market cycle.
I will be looking very forward to the plethora of trade alerts I will be issuing.
US02Y trade ideas
US02Y / US10Y - Look at history! Crash incoming?Look at 2000-2002 and 2007-2009.
What happened when the US02Y / US10Y went down?
MEGA CRASH!
Do you really think history will not repeat itself this time?
The question is, how long do we have?
Nov 2025 might be the top?
Could we go up until early 2026?
Yield Spreads Warning About the Secular Bull MarketAre we in the final innings of the current secular bull market that emerged from the robust injection of liquidity in response to the 2008 Financial Crisis? Yield spreads are giving us a warning and one that should not be dismissed. Yield spreads show (shorter to longer in lighter blue to darker blue) a spread that has been shrinking, for quite some time. The yield curve has been inverted for a while too. As we tread these dangerous waters, one has to wonder, when and where will the next event to cause a credit contraction come from? Is it a bubble? Can it be AI, Credit, geopolitics, currency based? Something will distress the credit markets and, as long as the yield spread remains shrunken, this event will almost certainly cause a recession. TVC:US02Y PYTH:US10Y TVC:US30Y SP:SPX
2-Year US Treasury Yield: The Market's Immediate Sentiment GaugeThe 2-year Yield currently trades at 3.805%, unfolding within a well-defined three-year falling wedge pattern. This formation follows an extraordinary surge from 0.105% in January 2021 to 5.283% in October 2023—reflecting rapid Fed rate hikes and inflation expectations. The 4.00% level, which aligns with the Fibonacci 23.6% retracement, has been tested multiple times, indicating it as the immediate battlefield for bulls and bears.
Warning Signs: If yields fail to stay above 4.00%, a decline toward 3.54% and 3.25% becomes probable, with further downside risk to 2.80%, 2.62%, 2.34%, and potentially 2.16%. A drop this deep would imply markets are aggressively pricing in future rate cuts or recession fears.
Breakout Scenario: A decisive break above 4.00% would violate the falling wedge ceiling, targeting 4.17% and 4.46% and possibly retesting the 5.00% highs. This would indicate renewed fears of sticky inflation or delayed Fed easing.
Fundamental Reflection: The 2-Year is the cleanest read on front-end Fed policy sentiment. Its sensitivity to Fed language, inflation trends, and geopolitical disruption (e.g., tariffs) means its technical posture is deeply rooted in macroeconomic fragility.
US02YThe differential between the US02Y (2-year U.S. Treasury yield) and EUR02Y (2-year Eurozone government bond yield) significantly influences the trade directional bias for the USD and EUR this month. Here's how:
Impact of Yield Differential on Currency Trade
Interest Rate Differentials: A widening yield spread between US02Y and EUR02Y, where U.S. yields rise more than Eurozone yields, typically supports the U.S. dollar (USD) against the euro (EUR). This is because higher yields in the U.S. attract more capital, increasing demand for the USD and causing it to appreciate relative to the EUR. Conversely, if Eurozone yields rise faster, the euro may strengthen against the dollar.
Monetary Policy Expectations: The yield differential also reflects expectations about future monetary policy actions by the Federal Reserve (Fed) and the European Central Bank (ECB). If the yield spread widens in favor of the U.S., it may indicate expectations of more aggressive rate hikes by the Fed compared to the ECB, supporting the USD. If the spread narrows or reverses, it could signal a more dovish Fed stance or a more hawkish ECB stance, potentially weakening the USD.
Risk Sentiment and Economic Outlook: Rising yields in either region can signal improving economic conditions and confidence, attracting investment and supporting the respective currency. However, if yields rise due to inflation concerns or economic uncertainty, the impact on currency strength can be more complex.
Trade Directional Bias This Month
USD Bias: If the US02Y yield remains higher than the EUR02Y yield, Long positions in the USD, expecting it to strengthen against the EUR due to higher returns and potentially more aggressive Fed rate hikes.
EUR Bias: Conversely, if the EUR02Y yield rises faster than the US02Y yield, long positions in the EUR, anticipating euro strength due to higher returns and possibly more hawkish ECB policy.
Key Factors to Watch
Monetary Policy Announcements: Any statements from the Fed or ECB about future rate decisions can significantly impact yield differentials and currency movements.
Economic Indicators: Data on inflation, GDP growth, and employment can influence yield spreads and currency trade.
Market Sentiment: Shifts in investor risk appetite and confidence in economic growth can also affect currency direction.
In summary, the yield differential between US02Y and EUR02Y is a crucial indicator for determining trade directional bias in the USD/EUR pair. A wider spread favoring the U.S. generally supports the USD, while a narrowing or reversal supports the EUR.
US02YAs of April 2025, China holds approximately $759 billion to $761 billion in U.S. Treasury securities, making it the second-largest foreign holder of U.S. debt after Japan. This is a significant reduction from its peak holdings of $1.316 trillion in November 2013.
Potential Effects if China Sells Its U.S. Treasury Holdings
If China decides to sell off its U.S. Treasury holdings, the potential effects could be substantial:
Spike in U.S. Interest Rates: A mass sell-off would flood the market with U.S. Treasuries, depressing their prices and causing yields (interest rates) to rise sharply. Higher borrowing costs for the U.S. government could exacerbate fiscal challenges.
Weakened U.S. Dollar: Selling large amounts of Treasuries would likely weaken the dollar as demand for dollar-denominated assets declines. This could lead to inflationary pressures within the U.S..
Global Financial Shock: The sudden liquidation of such a large asset pool could destabilize global financial markets, given the interconnectedness of economies and reliance on U.S. Treasuries as a safe-haven asset.
Economic Impact on China: Dumping Treasuries would also hurt China by reducing the value of its remaining holdings and potentially destabilizing its own economy due to reduced export competitiveness and financial ripple effects.
Likelihood of a Sell-Off
Despite these risks, such a move is considered unlikely for several reasons:
Mutual Economic Dependency: The U.S.-China economic relationship is deeply intertwined, with China relying on U.S. debt as a safe investment for its foreign exchange reserves and the U.S. benefiting from China's purchase of Treasuries to fund its deficit.
Self-Inflicted Damage: A sell-off would harm China’s own financial stability and trade relations, making it a risky strategy even during heightened tensions.
In conclusion, while the threat of China weaponizing its Treasury holdings exists, it remains a double-edged sword that would inflict significant damage on both economies and global markets
US2Y - BUY (SELL BOND) strategy 3 hourly chart - regression The 2Y US yield has move lower and broken important yield level of 3.9650 area. The GAP lower 3.8500 currently, is providing an extremely oversold reading and other time frames are oversold as well but not as severe.
Strategy SELL BONDS @ 3.78-3.8350 yield and take profit with a 15 basis points toughly benefit. It does also support some US$ strength in coming sessions, is my personal view.
US02Y hidden bearish divergence and RSI rejection from level 40
US02Y could be repeating a pattern from August 2024. Hidden bearish divergence (continuation of lower highs) and rejection of RSI from level 40. Following the rejection, the yields went lower.
US02Y going lower is bullish for risk assets.
In addition, US02Y could be on the verge of a fifth Elliott wave to the downside. The second wave overshot a little the textbook 0.618 fib level. The fourth wave retraced a little less than the textbook 0.386 fib level. Given the RSI analysis above, the fifth wave could be starting now leading US02Y lower. This would be bullish for risk assets such as stocks and crypto.