The opinions expressed in this report are those of Inspirante Trading Solutions Pte Ltd (“ITS”) and are considered market commentary. They are not intended to act as investment recommendations. Full disclaimers are available at the end of this report.

Executive Summary

In the October 10 report, Inspirante Trading Solutions delves into the recent surge in the U.S. Treasury yields to outline the underlying drivers of bond market capitulation, through the lenses of technical analysis, cross-asset dynamics, and market sentiment, uncovering the ideal instrument to manage risks in today’s market.

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Welcome to Japan, Mr. Bond

Upcoming economic events (Singapore Local Time):






U.S. PPI (Sep)



U.S. CPI (Sep)



China CPI (Sep)



U.S. Michigan Consumer Sentiment Index (Oct)



U.S. Retail Sales (Sep)



China Industrial Production (Sep)



China Retail Sales (Sep)

After robust Non-Farm Payroll data, investors are keenly watching if U.S. inflation will uptick again.

Markets in focus

Figure 1: E-mini Nasdaq-100 Index futures

The Nasdaq-100 has broken down from an eight-month rising channel. Now, it’s gathering itself just above a pivotal neckline. Should it falter here, eyes will be set on potential support only at the 13000 level.

Figure 2: U.S. 10-year Treasury Yield (Weekly)

The U.S. 10-year yield has reached its highest level since 2007. Since 2021, it has made four consecutive higher highs. However, the Relative Strength Index (RSI) shows divergence as it only registered four lower highs. Such RSI divergence usually suggests exhaustion in the direction of the trend.

Figure 3: U.S. 2-year 10-year Treasury Yield Spread

With the U.S. 10-year yield soaring higher, the yield curve steepened substantially, as seen from the 2-year 10-year yield spread. It has arguably completed a double bottom.

Figure 4: JPY/USD Futures vs. U.S. 10-Year Treasury Yield (inverted)

The Japanese yen has been weakening against the U.S. dollar in lockstep with the U.S. yield move. Interestingly, yen’s current level is where the Bank of Japan (BoJ) stepped in to intervene in 2022. If we expect bond yields to pull back, the yen will likely strengthen from here.

Figure 5: Natural Gas futures

Natural gas price has been consolidating in a tight range for the better part of 2023. As winter approaches, it starts to move higher and potentially break out from the range.

Our market views

Over the past few weeks, media headlines have buzzed with the “parabolic” surge in U.S. Treasury yields. To frame this in context, the U.S. 10-year yield – a global benchmark and the cornerstone risk-free gauge of modern finance – has surged nearly 70 basis points from late August to early October. This places it at levels reminiscent of 2007, eerily just before the fallout of the Great Financial Crisis.

While a myriad of factors have nudged yields upwards, today we will hone in on the technical aspects of recent moves. Post-pandemic, four periods stand out distinctly (from August 2020 to March 2021, March to May 2022, August to September 2022, and May 2023 onwards), where we witnessed brisk rate rises followed by notable pullbacks. Typically, these climbs ranged between 130–140 bps. From its May trough of 3.5%, the U.S. 10-year yield has since ascended over 143 bps, peaking at 4.81%. In addition, as we see in Figure 2, these four local peaks reveal an RSI divergence on a weekly scale. Such patterns often hint at dissipating momentum, with each successive thrust appearing less forceful.

Diving into cross-asset dynamics, it’s clear the U.S. dollar has been on a tear, registering gains for 12 consecutive weeks since July—such a robust streak points towards a potential pause or pullback. Oil prices offer another illustration: having soared from sub-60 dollars in June to 95 dollars by September-end, the early days of October saw them retract over 13% to settle in the low 80 dollars. Concurrently, gasoline prices dipped by 18%. This abrupt reversal in the energy market, spurred by factors like profit-taking and looming recession concerns, may relieve some yield pressures as inflationary outlooks moderate.

To distill our perspective: markets are seldom linear. Gleaning insights from technical indicators and the pervasive bearish sentiment on social media, we surmise that we might have witnessed a bond market capitulation. The likelihood of a temporary peak in yields followed by a short-term pullback seems plausible. Referring to Figure 4, the Japanese yen stands out as an ideal instrument to capitalize on the “yield reversal” trade, given its high correlation with yield movements, and its current positioning at a level that might trigger BoJ intervention. In addition, any broad U.S. dollar weakness is also a tailwind for the yen. Essentially, a long position on JPY is the one single deed that helps us meet many needs.

And just as markets never move in a straight line, neither do they consolidate indefinitely. With winter looming, the historically winter volatile prices of natural gas start to show the seasonal pattern. We might’ve been a tad early in our August attempt to turn bullish on natural gas. Still, as we highlighted then, the beauty of our ratio call strategy lies in its ability to cap potential losses at the outset if the price breakout did not materialize. Now, we’re inclined to revisit this prospect and give it another try.

How do we express our views?

We consider expressing our views via the following hypothetical trades1:

Case study 1: long JPY/USD futures

We would consider taking a long position on the JPY/USD futures (6JZ3) at the present level of 0.00678, with a stop-loss below 0.00665, which brings us a hypothetical maximum loss of 0.00678 – 0.00665 = 0.00013 points. As shown in Figure 4, if JPY/USD reverses from the support level, it has the potential to reach 0.0072, a hypothetical gain of 0.0072 – 0.00678 = 0.00042 points. Each JPY/USD futures contract represents JPY 12,500,000, and each point move is USD 12,500,000. E-mini JPY/USD futures (J7Z3) is also available at half of the contract size.

Case study 2: short natural gas ratio calls

We would consider taking a short position on natural gas ratio calls. We could sell one natural gas November 2023 call option with strike price 3.3 (ONX3 3.3C) at 0.18 points and buy two ONX3 3.4C at 0.14 points. The setup cost of the ratio calls is 0.14 x 2 – 0.18 = 0.1 points. Looking at Figure 5, if natural gas continues the rally and moves beyond 3.4 + (3.4 – 3.3) + 0.1 = 3.6 by the option expiry, the strategy will be in profit. The maximum loss happens when the underlying settles at 3.4 by option expiry, and the potential loss amount is (3.4 – 3.3) = 0.1 point. A Natural Gas option contract represents 10,000 MMbtu of natural gas; each point move is USD 10,000. Investors could also consider Natural Gas Weekly options to trade or hedge specific event risks.

1 Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.


The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Inspirante Trading Solutions Pte Ltd (“ITS”). CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.



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