T-bond/T-note Spread: The ‘Add-On’ Sell Signal Was Triggered

T-bond/T-note Spread

On February 6th the blog entered a hypothetical short position in the March T-bond/T-note spread at approximately 18-30 (premium T-bonds) when the spread made a two-day close below the rising 30-day Moving Average and signaled a bearish trend change.

We are running an ‘add-on’ strategy to increase the position size if/when the treasury spread continues to decline. The interval parameters for adding more spreads remain at two and one-quarter point declines from the most recent entry. Therefore, a hypothetical ‘add-on’ was initiated on Friday when the March T-bond/T-note spread closed at 16-20.

March T-bond T-note spread daily

March T-bond T-note spread daily

With the ‘add-on’ entered, the position size has been doubled. The liquidation for both the initial position and the new ‘add-on’ position will be moved to a two-consecutive day close above 18-30, which is a breakeven level for the initial spread.

We will keep hypothetical orders working for two more ‘add-on’ positions. The next ‘add-on’ will be triggered on a close at 14-12 or lower. The trailing stop will continue to work to liquidate all units on a two-consecutive day close 2-08 (two and one-quarter points) above the most recent entry price.

T-bond T-note spread weekly

T-bond T-note spread weekly

Yesterday the T-bond/T-note spread made an end-of-week close below the rising weekly 20-bar Moving Average for the first time since January 2014, triggering a bearish trend change on the larger timeframe. The last time this signal occurred, the T-bond/T-note spread sold off for an additional seven months and hit a two-year low. Things could get real interesting from here!

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