“Is China Dumping U.S. Bonds?” Of course they are! Even so, MSNBC evidently thought it necessary to run that headline with a question mark at the end. How else to explain why T-Bond prices would fall on a day when stocks around the world were getting slammed. This has happened twice in the last week, and it suggests that a seller big enough to negate the flight-to-safety effect has been liquidating U.S. paper by the ton. Only China and Japan hold enough of it to have such an effect, but BOJ is not suspected of dumping. Just why the Chinese would is a mystery to me, and probably to many others. Do they need physical cash to shore up their own banking system as stocks plummet? Are they attempting to monetize by un-sterilizing the government’s purchase of Chinese corporate bonds?
We remain very bullish on T-Bonds, even if the next big rally might have to wait until investors sniff out a global recession or worse. From a technical standpoint, the futures could still ratchet lower to the 152^25 target shown. This is by no means a done deal, given the trouble bears have had pushing the futures beneath the p2 pivot. In any event, traders can buy there aggressively with a tight stop if the opportunity should arise. You can step up your size if you’ve been short for at least a part of the ride south from 153^21. ______ UPDATE (September 7, 11:24 p.m.): The futures have built a base after going no lower than 153^23. It will become more meaningful if they can rally above 157^27 in the days ahead.