[Soultrader]

Im looking to learn the bond markets using simple strategies with market profile. James Dalton in his recent webinar held at LBRGROUP, mentioned how mp has its advantages with the 10 year notes and 30 year bonds because it is traded mainly by institutions.

I would like to receive some few pointers with the bond markets. Are there internals tools like TICK, TRIN, Prem for this market? I was told it was quite news sensitive. How liquid is the overnight and premarket session? Are there other financial instruments that a trader should follow with the bonds?

Thanks

[notouch]

The bond markets have massive liquidity so that's seldomly an issue. Bonds move inversely to interest rate expectations so anything that increases the likelihood of rate increases (particularly higher inflation) will lower the price of bonds so there's big volatility around key economic releases like CPI and NFP. There are no internals as such because the underlying is a single instrument rather than an index. The only "internal" is interest rate expectations. The shorter term instruments are more responsive to economic news than longer term instruments. Consider CME Eurodollar for short term interest rates. Also there are bond futures for all countries so you might want to trade the Japanese 10 year bond or the German Bund.

[weiwei]

Bond is more trending and when it move it is more gentle then index market.

So if you are more of a trend trader, then bond could be a good fit. If you are a counter-trend trader, then you might have tougher time in this market.

my 2 cents.

Originally Posted by Soultrader »

Are there internals tools like TICK, TRIN, Prem for this market?

Depends on your definition of "internals".

$DJCBTI - this is the Dow Jones CBOT Treasury Index, a weighted representation of the 5, 10 and 30 year contracts.

CBOT - Treasury Dow Jones CBOT Treasury Index

$TYX.X, $TNX.X and $FVX.X - the 30, 10 and 5 year yields. They move inversely to the respective contracts. These are the quoted yields (with a multiplier of 10) used for interest rate options.

Interest Rate Options

http://www.cboe.com/LearnCenter/pdf/IRO.pdf

Originally Posted by Soultrader »

I was told it was quite news sensitive.

You heard correctly. Best to always keep in mind the 8:30am and 10am (EST) economic reports when trading. Use econoday or some other service to give you a list of these.

Try http://fidweek.econoday.com/ for a list.

Originally Posted by Soultrader »

How liquid is the overnight and premarket session?

Very liquid and deep at all times, including the US overnight and premarket session. How deep? Just look at the DOM (depth of market) after hours - many more contracts than the ES. Slippage (if any) is minimal, with a spread of no more than 1 tick wide.

Originally Posted by Soultrader »

Are there other financial instruments that a trader should follow with the bonds?

Sure. Asides from the 10 and 5 Year Treasury Notes, try looking at 30 Day Fed Funds, 1 Month Libor, Eurodollar futures.

More info here:

CBOT - Fed Funds 30 Day Fed Funds Quotes Open Auction

CME LIBOR Futures

CME Eurodollar Futures and CME Eurodollar Options

Originally Posted by Soultrader »

Thanks

My pleasure.

[brownsfan019]

I found bonds too boring. Not that it's a bad thing, but these things can take forever to move sometimes. Huge liquidity is nice, but I have to think there's a correlation between massive liquidity and smaller movements intraday.

[notouch]

There's an exciting way and a boring way of trading bonds. The exciting way is to trade around economic numbers. Look at bonds around 0930 EST on NFP Friday and you won't say they're boring to trade. The boring way is to look for the longer term trend. Either way you need to combine auction theory with fundamental analysis. If you don't understand why core CPI coming in at 0.1% rather than 0.2% as expected increased the price of bonds then that's something you have to learn. It's not like stock index futures where there's a spike and then the market ignores the number.

It's not enough to get the economic number 10 seconds after release. Use a news squawk to get the release immediately. A good free one is www.NewsStrike.com.

[Nick1984]

Bond markets are traded heavily by fund manager who run a geared fund. They constantly trade the bonds so that they can match the bond duration to the duration of their debts.

In terms of things that effect bonds, yes interest rate are the number one thing. But also other economic indicators such as the CPI (Consumer price index) and employment figures also have indirect effects. I.e: If employment rises, then income rises, then aggregate demand increases, which means more money floods the economy, which means inflation, which means interest rate rises! etc etc.

Longer term bonds due to "convexity" are more strongly effected by changes in discount rates (interest rates) due to the nature of bond prices. Depends as well as whether the bond is a 'zero' or a coupon bond. It's very very rare these days to find 'zero's in the market as they are usually OTC instruments.

Credit ratings are also important. For a higher return you want to trade Junk Bonds as the discounts off face are larger due to the poorer credit ratings.

If you keep track of S&P and Moody's reports on credit ratings this helps as well as one bad report can send the price of a bond tumbling!

Personally I find bond's very boring and there are way to many big players there which is kind of intimidating. As for indicators such as TICK etc i dont think they apply to bonds cause they are not based on any underlying stock index.

Hope that little bit helps.

[torero]

I think Soul was interested in US Treasuries and Bond futures, not companies bonds. I'm interested in learning about @US myself.