After listening to Powell's speech at JH, here are the key points that stood out to me and my takeaways:

1. He first made clear to categorize monpol as effective against cyclical changes but not structural. This is the probably the most important sentence of his speech. 2. The labour market is in a "curious balance" of showing signs of weakening while supply is lowering due to immigration dynamics and falling LFPR.
It's an indication the worry is centred around weakness in hiring being currently masked but could potentially accelerate suddenly

Stepping outside of US rates this morning, to look at Japan quickly as at the end of the day, DM rates complexes are intertwined - they're all drunk friends on the same banana boat in one big ocean.

The big move in JGBs has also been on the long end, with 30s reaching their highest in over two decades. Similar to the US, a poor 20 year auction lit the match under clenched butts that made fears of a methane bomb redundant due to a massive duration shart instead.
Consider the following: Cost to hedge USTs back to JPY are not prohibitive but they are still lower than investing domestically (note XCCY is quite shallow but negative)

Just taking stock of things given the heightened worries about treasuries right now. 🚨🚨🚨

Starting with my scatter, I hold the view that we're shifting back to the right side (yellow dots), meaning overheating eco should see the curve bear flatten and recessionary path sees curve bull steepen but with little joy from the long end. It's also worth noting in the above scatter that current levels are similar to 2007 and sorta-2001. Both pre-recession/bear market timeframes, with the path travelled similar as well (up and to the right followed by u-turn down). Meaning to say, the current bond market has continued to trade in a recessionary mindset.

2025 Macro Outlook – So Good it Hurts

As much as this is an outlook of the year ahead it’s a review of past views. In November, fresh off the election I wrote the following thread and not much has changed but here’s the lowdown:
1. Equity price has moved faster than earnings but remains correlated
2. Mid-year risk unwind was mechanical but underpinned by growth scare
3. June CPI ignited consensus for cuts – but Fed went big and now looks like a mistake
4. TY skew is back to negative, forward cuts are getting priced out
5. Risk of curve bear flattening less durable. I favoured bear steepening, which was right
6. HY issuance has been shortened, relying on rate cuts to materialize
7. Dollar is rate dependent for now
8. Clearing of rate vol sets it up for an expansion that could upset fincon
9. Gold like rate vol, was a hedge whose use was over post-election but I thought could still come back
x.com/EffMktHype/sta… Since then, I can happily report that much of it was on point
1. Equity valuations and spreads have marginally weakened
2. This was driven by tighter fincon as yields rose, the curve bear steepened and vol sustained/increased
3. Dollar has continued its march higher (which tends to be an SPX headwind)
4. Gold demand has sustained as inflation concerns gained traction

Haven't done a markets thread in a bit but it's good for me to journal this out so I can spot mental mistakes and gaps when I review this. Main question for me is, where are we now and can we keep going?

The main question is actually where did we come from to get here, as things don't feel as simple as I once thought.
/ There have been three major economic events in the last 6 months (I'm ignoring market events like August selloff) marked out on the chart:
1. The June CPI released in late July ⚪️
2. The first Fed rate cut of the cycle (by 50bps) 🔵
3. The U.S. presidential and general election🔴

Hello and welcome to Backtest Tuesday!
Welcome to Backtest Tuesday! This will be an ongoing discourse for everyone to participate in random backtesting, realize market falsehoods and try out things that may or may not work, myself included! We will use the terminal backtesting function (augmented with custom studies) and through the week the thread is open to ANY idea within the parameters of the model.

To recap, last week we added some basic trend and breakout rules to the range-bound strategy and tweaked the exits. The equity curve looks nice, our objective function (profit factor) has been maximized while drawdowns have been lowered. Today we take the next step and move into testing with out of sample data to see how awesome this strat is! drumroll please

Welcome to Backtest Tuesday!
This will be an ongoing discourse for everyone to participate in random backtesting, realize market falsehoods and try out things that may or may not work, myself included! We will use the terminal backtesting function (augmented with custom studies) and through the week the thread is open to ANY idea within the parameters of the model.

To recap, last week we built a range-trading strategy for Russel 2000 Futures using moving retracement levels. The ultimate goal is to try and build an all-in one model that switches between range-bound and trend following.

They key points from the range-bound strategy are:
1. Short at the upper retracement, long at the lower retracement
2. Only when price action is range-bound
3. And only if that range is compressed
4. We stop out if price action exits the established range and losing more than 2.5% at the close
5. We place trailing stops using retracement levels inside the range where short term momentum is weak

Please read last week's thread QT'd here for a full rundown of how we got here.

This week - we will tackle the trend portion! The equity curve of the model with just range-trading is what we expect to see, a general positive performance during sideways periods with pockets of being flat during larger moves (and naturally expanded volatility). The aim now is to fill in these quiet periods with effective positioning to capture trend.

Welcome to Backtest Tuesday! Yes, it's back.

This will be an ongoing discourse for everyone to participate in random backtesting, realize market falsehoods and try out things that may or may not work, myself included! We will use the terminal backtesting function (augmented with custom studies)

Through the week the thread is open to ANY idea within the parameters of the model. To start...

This week we will use Russell 2000 futures. The objective for this week is to find out:
1) Can you build a model that switches between range-bound and trending
2) How do you trade either one
3) Is it even worth it?

For the sake of simplicity we will use the following parameters:
1. A constant capital amount of 100k (no compounding) with 1MM equity.
2. Daily frequency
3. Long/Short
4. 2017-2022 as our in-sample period. At the end we will then review performance using 2023-2024 as our out of sample period. To set up the first part of this I will naively define the asset as being range-bound if it is trading in between two (or more) established levels in a lookback and trending to be anything outside of that.

To set up the rangebound conditions, I am using moving retracement levels built in STDY

The top panel defines the parameters for the lookback period, and 4 variable retracement levels.
The middle panel is to output the moving retracement levels and the bottom is just to output the actual data onto the chart.

The reason why I bring up the neutral rate is because I think the market is actively debating it without realizing it or explicitly saying so.
Much of the consternation around Fed pricing right now is how many cuts is appropriate this year, but that implies that cuts themselves are appropriate. One of the key tenets for this view is that with inflation moderating and (to a lesser extent) activity cooling, the NOMINAL Fed Funds rate, if left unchanged gets more restrictive as inflation falls due to the real-FF increasing (Nominal-FF minus Inflation = Real-FF). Thus, in order to cool the economy without overtightening the Fed has to cut rates.

Economic Syncopation Update: Ummmmmm

Either we have a recession really soon or I think the Fed needs to hike?
Allow me to explain. The previous thread on Economic Syncopation and trusting the data is here for your savage reviewing and scathing criticism.

https://twitter.com/EffMktHype/status/1732241858498298095

Economic Syncopation: Trusting the Data

The key takeaway from my last update on Econopation™ was that if we looked at the rate of change and not levels, we could understand how various eco indicators are evolving and whether sentiment and reality are back in sync...or not. If not already clear, by turning to RoC we want to observe the indicators' direction relative to one another but also whether they are growing or declining (i.e. +/- 0%)
Smoothing out series' like ISM allows us to see the general trend: PMIs are flattening out (heading to 0%)

The reaction in bonds to CPI y'day was everything and nothing at the same time. If you told me inflation was going to come in soft and bonds would rally on the end of hiking cycle, I'd probably think the curve bull steepened.
Yet while everything rallied, the curve did nothing
To be fair, the other curves steepened more, with the belly outperforming the most. But again, it raises the question of why we rallied so hard.

An Update to Economic Syncopation.

I previously conceived this idea of non-synchronization in the economy back in Jan (that long ago??) and how the pandemic disrupted the natural cadence of leading and hard economic data.
I'm happy to report I'm not the first. It was not novel.
For those that missed it, here is the original thread. The basis of the discussion was how the pandemic and subsequent rescue compressed typical reaction times, thus causing everything and everyone to be out of lockstep - syncopation in the economy

https://x.com/EffMktHype/status/1619985221524520965?s=20

Rate vol continues to climb, with long end vol continuing to drive the show. Pain continues to be wreaked in the longer tenors as evidenced by the bear steepening in the curve that has not abated.

So...is it time to start nibbling on duration? Much of the pressure is in 10s but 30s bears (pun intended) watching. The 2022 rate hike campaign that ratcheted front end vol higher from monpolvol has ended. Recall that long end bonds were not spared - but they were passengers.
That the vol complex flipped raises the

This is the ratio of 1 month ATM implied vol on ES vs TY. It recently went as low as 1.61, only seen for a blip in 2014. Other notable observed lows close to this level was 2013 and 2016 (the first clue).
Now if you're expecting bearporn - let me finish first before you do
/ The point of a ratio is that is involves TWO moving parts. Now with that in mind, let's try to deconstruct this ratio and find some sense in it. The obvious questions are

"why is it so low, what does it mean and what does it imply?"

So let's start with the first qn.

"2s' peak always exceeds the peak in FF". Is the pain trade for rates clearly to the upside? Doesn't mean it will happen but it does mean it's possible and the market is still clearly reticent to acknowledge it (which continues to contribute to the divergences cross-asset wise.
/ The idea that 2s always exceed FF in a hiking cycle is something I am guilty of proposing, even back in August when 2s were sub-3.50%

https://twitter.com/EffMktHype/status/1563221345093054464?s=20

/

If ES/SPX closes relatively unchanged on 5/18 you can expect realized 10d vol to drop to ~8% annualized. What's that mean?
Fuck all. As in literally fuck all is going on.
Here let me show you how little fuckery is going on.

F/1 First we set up some variables to help measure fucks. Default it to 2% close to close change for a threshold in fucker and 20 intervals for the fuckery lookback.

F/2

How have things changed over the first quarter of the year? In a way...not much. But the nuance is in both levels and direction.
Sometimes walking in a circle helps you spot what's at the edge of the forest, sometimes running on a treadmill gets nowhere but you're fitter. Case in point: The US 2s10s curve is.......the exact same spot it was Jan 1. You're back at the same spot in the forest.
But what the trees tell you is that there was a persistent pressure for the curve to flatten only for that to be rudely blown up.

March 2023 Gif Recap

Macro traders Regional banks

The BBB Series – Topic 7: Part 2 – Exploring Other Swap Types

Here we will take a brief look at a few other swap types that have been mentioned in this series so far, as well as some swap types you might read about in news/fintwit. Again, we will not go too deep into each of them but more so focus on building the right intuition behind each of them – reasoning trumps rote.

As promised, a thread on my approach to building a rules-based model. There's no perfect way, you won't get a blueprint of what I do, just how I approach a systematic trading model. I hope this provides some value in constructing a strategy, rules-based or not!

Let's go! First, let's define a systematic approach. You're essentially taking defined and measurable inputs and packaging them together to form coherent and consistent rules to establishing positions in various market instruments.
Ever notice how some traders refer to their "system" even