October 12 is Columbus Day in the US. Stock exchanges continue to operate as usual, but the US government bond market is closed. Treasuries trading will resume only on Tuesday, October 13.
Why the bond market closure matters
In recent weeks, it was US government debt yields that were one of the main benchmarks for global markets. Rising yields pressured stocks, supported the dollar and reduced the appeal of gold. At the same time, the bond market reflected expectations for inflation and further Fed actions. Today this benchmark is temporarily absent.
What this means for other markets
Stocks, currencies and gold continue to trade. But without a full-fledged reaction from the Treasuries market, it is harder to understand how sustainable the moves in other assets are. Therefore, today's price changes may provide less information about the real sentiment of major participants. The first full-fledged signal will appear after the debt market opens on Tuesday.
Geopolitics adds uncertainty
An additional factor is tension in the Middle East. A missile strike on Riyadh International Airport increased geopolitical risks and supported oil. In a normal session, such news could have immediately affected US bond yields. Today it is impossible to see this reaction until trading resumes.
Why liquidity may be lower On a holiday, some major US participants are absent from the market. Volumes may be lower than usual. This creates so-called thin liquidity. In such a market, even relatively small orders can move the price more strongly and form sharp candles.
Which assets are in focus
Stock indices, dollar pairs and gold may be especially sensitive. The problem is that the move may look strong intraday, but then completely change after full liquidity returns. Therefore, early moves of the week should be assessed more cautiously than usual.
Possible scenarios
Scenario A: the holiday session passes calmly. Volumes remain low, and major assets move within narrow ranges. On Tuesday, the bond market returns and sets a new direction.
Scenario B: on thin liquidity, individual large orders cause sharp moves. The price may quickly break beyond familiar levels, and then return back after liquidity appears.
What's next
The first important test will be the opening of the Treasuries market on Tuesday, October 13. Then it will become clear whether bonds confirm the moves that occurred during the holiday session. The main event of the week is US inflation data for September. CPI will be released on October 14 at 15:30 MSK. It is this report that may determine the further direction of yields, the dollar, gold and stock indices.
Got stopped out in an empty market?
On thin liquidity, the price can quickly pass through a level, take out stops and return back. For a prop trader, it is especially important to understand exactly how the program calculates daily drawdown. For some companies, the limit is calculated from the starting balance, for others - taking into account current equity. Additionally, restrictions on trading during important releases may apply. These conditions are best checked in advance, especially before CPI.