The invisible hand has been leaning on the bond market since mid May 2012. This was suggested by a cluster of DI readings below -60% (chart 1). Perhaps the timing of this setup relative to the unexpected events of the EU summit is merely a coincidence. Granted, the natural ebb and flow within all markets allows for concentration of funds without subversive means. In an era where everyone but the public has unrestricted access to the cookie jar of free money, such coincidences are hard to ignore.

Either way, the bond market's concentration of funds has yet to panic bond traders. That could soon change with Merkel's apparent capitulation from Not as long as I live to How Italy and Spain Defeated Merkel at EU Summit this week. Her unexpected, dare I say well-orchestrated change of stance could become the long awaited catalyst for the summer's risk-off to risk-on transfer. Besides, nothing says robust economy ahead of critical election better than surging stocks, commodities, precious metals, bond yields, etc.

The previous two bearish setups in bonds preceded moderate corrections of price and time.

Chart 1: US Treasury Bond 20YR+ (TLT) And US Treasury Bond Diffusion Index (DI)


Massive inflows into the gold, silver, copper, crude oil, etc. fits nicely with the above reasoning and coincidences (chart 2 and table 1).

Chart 2: Gold London P.M Fixed and Gold Diffusion Index (DI)


The +/- column shows the acceleration (+) or deceleration (-) of the money flows. Notice a big surge into the swiss franc and euro ahead of the EU summit.

Table 1: COT Money Flow Table


Enjoy your weekend and remember things are rarely what they seem.

Headline: U.S. Treasury Bonds Sell Off, but Still Best Quarter Since 3Q 2011

The latest measures to combat the euro zone's debt crisis brightened the mood in financial markets Friday, sparking a broad selloff in safe-haven Treasury bonds, German bunds and U.K. gilts. The flight out of bonds and into stocks and commodities provided some relief for European policy makers confronting mounting market pressure to act to contain the crisis. For now, investors welcomed the initiatives out of the two-day European Union summit as a signal that policy makers are making progress in tackling the problems which reduced the threat of a break-up of the monetary union. A highlight of the deal is that EU policy makers decided to use bailout funds to directly recapitalize Spanish banks, thus relieving the debt burden over the shoulder of Madrid. Another important development is a plan to make the European Central Bank as sole supervisor of the euro zone's banking system, a key step toward a banking union. While some analysts caution that these steps are not the ultimate solution to the crisis, for now, signs of policy makers making progress to address the debt crisis are welcomed by investors. Some traders also noted that expectations on the EU outcome had been low, as partly reflected in the rally in Treasury bonds Thursday, so any positive steps would give risky assets a boost at least in the short term. "Incremental movements toward resolution of the European problems are being viewed very positively by all risk markets since everyone knows there is no magic bullet and cannot be solved all at once," said Alan De Rose, head Treasury trader at Oppenheimer and Co. Inc. New York. In late-afternoon trade, the benchmark 10-year Treasury note was 21/32 lower to yield 1.648%. The 30-year bond was the biggest loser, with its price falling by 1 29/32 to yield 2.755%. Bond prices move inversely to their yields.Source: online.wsj.com

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