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An across the board breaking of support is taking place in a wide variety of bonds in the 6-pack above. Could this decline in price/rally in yield actually be a sign that growth in the economy is starting to take place?
Mark Twain once wrote “the report of my death has been greatly exaggerated!” Dating back to the ratings downgrade in U.S. Government bonds by S&P last summer and even further in the past, many have called for the death of bonds, due to a wide variety of reasons. An across the board breakdown in bonds does not mean the bond market is dead. The breaking of support should be respected for many reasons though!
Does the breakdown in prices/rally in yields reflect a improving economy? I’d like to hear your thoughts/feed back on this situation, because this question is way above my pay grade!
From a portfolio construction stand point it would suggest a harvesting in bond positions and if very aggressive, one could establish positions to score on defense with overhead stops.
Hi Chris,
As always your posts keep me real. I wanted to add that InvestorX is right on when it comes to TLT. From a pure technical analysis, filling the October gap is spot on. I bought some TLT yesterday right at the 200 DMA.
I would also like to second Greg’s post regarding bonds. How did they stay so low and range bound since November?
What I have to say is that TLT/TBF was an easy trade these last months. Bought TLT when touched lower BB. Sold when upper was touched. TBF was bought when TLT was sold and sold when TLT was bought.
After my last trade, I sold TBF @ 32.50 and bought TLT @ $115. TLT went to 116.50 and then reversed intraday to close near 116. I then became extremely lucky when I got stopped out at $114 during the next day. I almost did not get stopped out that day. I would have lost a lot more money because the price gapped down at the open to below 112.
Moral of the story: All good things come to an end and ALWAYS USE STOP LOSSES
Thanks Chris your site
Aaron
TLT filling its open gap from October, Support at the 200-day EMA after filling its open gap from October, which has created a new (3/14/12)gap now
I can’t figure out how an increasing cost of capital will benefit companies, unless you’re a bank (assuming they’ll start lending) or an insurance company, which relies on investment income to meet claims. Overall, I would think it’s good for the economy and individuals, but not the stock market and for owners in companies with shrinking profit margins.
Perhaps this is a wee dram of medicine to check on the patient’s condition for being weaned off the FED’s punch bowl. Letting the market gradually raise rates “restores” normal operations and expectations of a world we use to know. The sudden recent drop in gold is part of this same scenario.
Chris, thanks for your work making trend changes more apparent.
Steve
Inter market analysis becomes more and more useless by the day. How else can one explain yields being at all time lows for the past 5 months all across the curve and have US stocks rally so hard?
How can one describe stocks rally when the euro is up, down? How can one explain copper, treasuries, precious metals mostly trading in unison despite traditional fundamental drivers of those positions being vastly different? To think that markets reflect any sort of underlying strength or weakness in the economy is asinine. That is why Chris’ not a bull and not a bear post make so much sense. If you try to understand what is driving things you will go crazy.
My opinion? 16 trillion in debt? Higher yields are bad. Whether the SP agrees with remains to be seen but even w/o deficits we are in an exponential growth mode. I believe higher rates are deserved and should be considered a negative. Who knows how it plays out.
Europe and the European debt situation is now ‘fixed’ (of course it is not but as far as the myopia of wall street’s short term view it is). So money that piled in safe havens like US treasuries (and gold, Yen) during the Greece crisis over the past several months is now finding its way back to “risky assets”. The US dollar will rally as the Yen carry trade unwinds and will continue to be supported by the increasing demand for ‘risk on’ stocks, commodities and high yielding instruments and safer assets like treasuries, gold and safer currencies will get whacked. I don’t know for how long.
As an aside the yield increase will have an impact on the economic recovery (housing, lending and business investment) and the Fed will need to act at some point to moderate yields when they are concerned with the impact they have on economic recovery. For the short term they might be happy with the current recovery and allow the yield rise.
The fed will be faced with the dilemma either let the dollar rise and help the consumers with their oil purchasing power or further QE to help the multi nationals with earnings growth at the expense of higher gasoline prices. In the recent past when the dxy got above 84 the market priced in QE2. Oil prices and congress may hold back ben’s hands.
My guess is the market is not expecting QE3 soon and is front running the end of the twist. It looks like china is recycling their $USD into oil instead of UST from their recent account deficit, we will see how todays TIC data looks. Global growth is on the down trend in 2012. As art cashen recently said, to do good in the markets you have to be a good detective. Chris you seem like a good detective. Rules are changing maybe a sell off in bonds won’t be good for equities .
just a rotation out of bonds and in to the market. economy improving? or just greed manifesting itself, and folks jumping on the bandwagon that is the market?