Evolution of T-note channels

摘要

Positions of T-note futures in or out of channels indicate potentially undervalued or overvalued futures. By knowing which is more likely, you stand to make money in the markets. Here we show you how.rnRecent events in the U.S. credit market highlight the importance of monitoring the Treasury-note futures channels described in "Channeling T-note futures," July 2006. By reviewing how these events cascaded through the Treasury market, we can better understand how to utilize these channels in the future.rnIncreases in U.S. Treasury yields in June 2007 extended the length of the T-note futures channels. The original spreads between T-note futures yields and U.S. Treasury yields were observed between September 2006 and March 2007. These are shown by the black dots on "Adjusting for yields" (right).rnRed dots on the two charts show the evolution of the channels from March 12 through July 31. During this period, Treasury yields increased. The 10-year T-note futures nominal yield advanced from 4.56% to 4-74% and reached as high as 5.12% on July 12. The five-year T-note futures yield increased from 4.50% on March 12 to 4.57% on July 31, with a series of yields above 5.00% during the first week of July.