T-bond/T-note Spread: The Recent Position Was Stopped Out. Let’s Liquidate the Rest.

T-bond/T-note Spread

The blog is currently holding a short position in the June T-bond/T-note spread from the equivalent of approximately 35-08 (premium T-bonds). The initial position was entered in the March spread on February 6th.

An ‘add-on’ was entered on February 20th. This second position in the June T-bond/T-note spread is currently short from the equivalent of approximately 32-30 (premium T-bonds).

Another ‘add-on’ was entered on May 20th when the June T-bond/T-note spread closed at 25-14.5. This third position was exited at today’s close of 28-21.5 for a loss of approximately -$3,218.75 per spread.

June T-bond T-note spread daily

June T-bond T-note spread daily

The June T-bond/T-note spread plunged eleven full points from the late January record high in just over five weeks. After a nearly one-month rally into the April Fool’s Day secondary top, the spread once again plunged nearly eleven full points over the following seven weeks. Based on this symmetrical pattern, it may be due for another bear market rally.

If the spread makes another bear market rally that is similar in size and duration to the March/April bear market rally, it could run until mid-June and peak somewhere near 32-16. Coincidentally, this is just past the Fibonacci .618 retracement of the decline from the April peak. Therefore, we advocate booking the current profits and looking for a new setup to reenter the short side of the spread if it trades north of 32-00 again.

Trade Strategy:

On the short June T-bond/T-note spread entered at the equivalent of approximately 35-08 (premium T-bonds) and the ‘add-on’ spread entered at the equivalent of approximately 32-30, liquidate the spreads at 28-22 or better in the after-hours market.

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