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The New Doge is an Old Dog

Jul 1, 2021

By: Frank Kaberna

What if there was a market that, after months of laying dormant in a range of just a few pennies, rose by nearly 100% on guidance from a major influencer? That’s right, the next Dogecoin could be 2YR Treasury yields.

 

S2Y \ Small 2YR Treasury Yield

Source: dxFeed Index Services (https://indexit.dxfeed.com)

 

While the June FOMC Meeting did not bring a change in interest rates, the Fed did talk up a potential rise in short-term rates sooner than previously thought. 2YR yields rose from 0.18% to 0.23% the day of the meeting and onto 0.26% by Thursday of last week.* It may not seem like much, but this rise accounted for a 45% appreciation in S2Y futures, which are up over 100% as of last Thursday.

 

Where Can Rates Go?

With Central Banks abroad fashioning negative interest rates in recent years, they could (theoretically) go anywhere. That said, US rates have never ventured below 0%, which gives the 2YR little room to the downside at 0.26% compared to historical levels.

Since 2000, 2YR Treasuries have averaged well above 1.00% even with the Fed activity of the last decade influencing yields closer to 0%. As recently as 2019, 2YR yields were above 2.00%, and they reached 6.00% back in the early aughts.

 

2YR US Treasury Yield†

Source: US Treasury (treasury.gov)

 

Realistic Expectations in Rate Trades

Active traders accustomed to symmetric profit/loss metrics when they trade could find 10 basis points, or 1.00 ($100) in S2Y futures, to be a realistic risk and reward per contract. Those willing to #hodl a little longer can use historical averages to set their expectations: a trip back to 1.00% would correlate to 10.00 in S2Y futures prices.

High-flying markets with huge potential don’t always have to come in the form of something new or memed about. Asset classes like interest rates have been accessible for decades and they’re still moving hundreds of percentage points.

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Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks


*S2Y Index values between 6/16/21 and 6/24/21

†Values taken from treasury.gov as of 6/10/21

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


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