Monday, 24 June 2013

Any opportunities in the Emerging / high yield credit markets?

Unless you've missed it, the High yield / Investment grade / emerging / and even safe haven credit markets have sold off considerably with the yields rising across the board. However even though there is strong and expected talk on tapering the QE program there are still some opportunities. For example, the Fed IS STILL BUYING $85 billion of financial assets per month and there is still demand in this market.

Combine this with some short term technicals and we have some trade ideas.

to start with, the US 10's are going to be running the show as they are the most commonly viewed duration on the curve. So lets look here



Here we can see a longer term picture and see the huge short term weakness in bonds, but Stochastics are overbought and the yields are running into some stern resistance.


Here is an hourly view..... We can see that currently at 2.56% we are riding the upper level of the channel, but once again stochastics are overbought (in terms of yield) and so due a pullback, if we retake 2.5% then we could accelerate to 2.4% (bull/bear pivot) furthermore the Fibonacci levels seen in the first image have a 50% level at 2.58% and a close below that will show failure to break higher.

We can see the potential for a bearish candlestick formation, potential pinbar / evening star forming




Enough looking at the US 10's, we can see that it is likely we fall to 2.4% again, so I am looking at High yield and emerging bonds as high beta could react better. So I'm buying ZN_F at 125*26 for a move to 127*00 with stops at close below 125*00. you can see with inverted ZN the levels I'm referring too.



Now looking at $HYG (ETF for HY credit) we can see the potential of a bounce, because of this I'm Buying at $89.70 (20:44PM UK) and looking for a move to 91.50, a stop on close below previous low.



Furthermore I'm buying $EMB at 103.72 (20:46PM) for a move to 108 with stops below the lows also. Similar looking chart - just getting long risky credit!

Trade idea on the fact the Fixed income isn't a one way train downwards and trying to catch a falling knife. Tight stops, good R:R

If you're inclined to look into FX, you would Short USDJPY Short USDTRY and USDZAR, but I don't want to much exposure this direction.


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