I’ve been thinking about how to predict short term fluctuations in interest rates (and the bond market) for a long time, but I could never figure out a quantitative way to do so. The “breakout/breakdown trendlines” stuff seems no better than making a 50-50 guess.
I recently stumbled across this idea, and it seems to work.
The data is from Yardeni.
What this tells you is that interest rates’ short term fluctuations are heavily influenced by short term fluctuations in the economy.
*Notice how the chart uses the 13 week change in 10 year Treasury yield. This is because 13 weeks = 3 months, and the Economic Surprise Index uses 3 months of economic data.
The way to trade this is to go contrarian at the extremes. When the Economic Surprise Index hits a bullish extreme, you should wait a little before turning bearish on interest rates. When the Economic Surprise Index hits a bearish extreme, you should wait a little before turning bullish on interest rates.
Do you want a free trading strategy that can double your profits?