Lighten Up On Bond Holdings

We have utilized the strong July-August seasonality to make a profit. This was a bit of a risky trade in that the dynamic monthly cycle was falling but this only reduced the magnitude of the rally. As we can see from the monthly histogram below, September is a less bullish month. Examination of the daily histogram for September reveals that most of the damage occurs from the 18th through the 22nd. Notes have fallen about 80% of the time since 1982 in that interval. There are similar bearish intervals in the third weeks in March, June, and December.

The sells on the monthly cycle have been accurate 75% of the time. September has closed on the upside 53.8% of the time since 1982 but for a negligible gain. From the 8th through the 26th the weekly cycle is also in descent (correct 71% of the time).

One of the few bullish observations that I can make is that the monthly notes are very oversold. In this case, I think it is likely that this condition will only lessen the magnitude of the coming decline.

Short positions will likely be more profitable in the second half of the month, especially from the 17^th through the 27^th. 

Monthly Expected Return- US 10-Year Notes

Monthly Note Cycle

Average Daily Expected Return of US Notes from 1982 in this Month

Source: Forbes