Phil Grossfield's Blog


I was on TV; Bond Trading – An Explanation

pongo3TV Star! Yep, I was on TV With My Family.  Interestingly enough, the TV station interviewed me and my wife but only her comments were used. Hmmmm. Don’t they know I do public speaking all the time?!  Oh well, I guess they only wanted the TravelMama’s expert comments…and the message was great.  🙂
Click here to see the news story.

My Market Watch:   Bonds Up – Pricing Improved Already.  The Fannie Mae 30-year bond is up but only about +8bps…not enough to affect pricing much. Today should be a slow day for trading but next week things could get spicy.

The big news for me is that the 30-year bond is trading above the 200-day moving average. This is a significant event. First, let me explain moving averages and how they work.

A Moving Average is a trend in bond trading…it simply tracks the buying and selling of bonds. For example, we can track the trading of bonds over 25, 50, 100, and 200 days Moving Averages, among others if desired.

c32An easy way to think about Moving Averages is to think of them as floors and ceilings. And think of the bond itself as a glass elevator. As bonds are bought the elevator goes up…when bonds sell off the elevator goes down (when up rates improve…when down rates get worse). Over the last 10 months the bond was trading below the 200-day moving average…rates got worse.  But just recently the bond has been bought enough to keep it ABOVE the 200-day moving average. This is fantastic news.

Traders now watch the trend in bond buying and selling to give them an idea of where the bond is heading. This is where the elevator comes in. If the bond is being bought the elevator goes up and approaches a ceiling. This ceiling is considered resistance because the elevator might stop and head back down. If the bond continues to be bought, then the elevator just keeps going up until it approaches another ceiling, and so on.  If the bond is being sold off, then the elevator goes down and might stop at a floor and head back up, or, it might go through the floor and down to the next floor.

In sum, when bonds are being bought, the price of bonds goes up, the elevator goes up, rates/pricing improve. When bonds are being sold off, the price goes down, the elevator goes down, and rates/pricing worsen.

Right now the bond is being bought above the 200-day moving average and this is good, very good for rates and pricing. Assuming the prediction that QE is in effect into 2014, we should have a nice run here for the next several months.


Wholesale: Non-Conforming Matrix & Guidelines
Correspondent: Non-Conforming Matrix & Guidelines

One response to “I was on TV; Bond Trading – An Explanation

  1. Bernie Dillon October 25, 2013 at 6:41 pm

    Well she may have been doing the talking but you were doing the doing playing with the dog. Where is that indoor play yard. I would love to take my huskey there. You look great and your family is beautiful. Have a great weekend super star!!!

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