"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 13 hours Is This The Death Of The iPhone X?
  • 14 hours Is London Still The Financial Capital Of The World?
  • 15 hours Is Gold Staging A Comeback?
  • 16 hours The $200 Million ‘Golden Parachute’ For Rupert Murdoch
  • 17 hours Bitcoin’s Breakout Is Not As Bullish As it Seems
  • 19 hours Farmers On Edge As Trade War Hits U.S. Grain Shipments
  • 21 hours Is Silver Poised For A Massive Break Out?
  • 2 days Meet The Hedge Fund Billionaires Club
  • 2 days The Next Housing Crisis Could Be Right Around The Corner
  • 2 days Cartel's, Pirates And Corruption Cost Mexico $1.6 Billion Per Year
  • 2 days Africa’s Fastest Growing Economy
  • 2 days The Blockchain Boom Hits The Utilities Sector
  • 2 days Why Smart Money Is Selling Off Right Before The Bell
  • 2 days Tech Giants Rally Ahead Of Earnings Reports
  • 3 days Global Debt Hits 225% Of GDP
  • 3 days The World’s First Trillionaire Will Be A Space Miner
  • 3 days How Student Debt Could Cause The Next Real Estate Crisis
  • 3 days This $550 Billion Industry Is Betting On Bitcoin
  • 3 days One Commodity Set To Soar On Russian Sanctions
  • 3 days China’s New Car-Market Rules
Investors Bullish As Earnings Season Kicks Off

Investors Bullish As Earnings Season Kicks Off

The first round of earnings…

Tech Giants Rally Ahead Of Earnings Reports

Tech Giants Rally Ahead Of Earnings Reports

Earning season has just begun,…

The Case For Treasury Bonds

With the economy softening and the Federal Reserve unable to provide a positive catalyst in the form of lower rates, the bond market has taken up of the slack producing lower yields. For example, mortgage rates have dropped over the past month enticing homeowners to refinance. It may not clear the glut of homes on the market or get us back to the old days of your house as an ATM machine, but lower rates do help. This appears to be a trend that will continue especially since Washington and the Fed no longer have the political will to expand the deficit.

Technically, this appears to be the correct view especially from a long term perspective. Figure 1 is a weekly chart of the yield on the 30 year Treasury bond (symbol: $TYX.X). The indicator in the lower panel looks for a clustering of negative divergence bars between price (or yield) and an oscillator used to measure that price. Every top in Treasury yields since 1988 has been heralded by a clustering of negative divergence bars. This time is not different, and the 30 plus year bond bull market (i.e., lower yields) continues on.

Figure 1. $TYX.X/ weekly
Figure 1. $TYX.X/ weekly

Figure 2 is another weekly chart of the yield on the 30 year Treasury bond (symbol: $TYX.X). The maroon colored dots are key pivot points, which are areas of support and resistance. Since 2003 to late, 2008, the 4.2% area has provided support, but that level is now resistance and very much in the rear view mirror of the current move. I would classify that area as very significant, and the fact that we are below that area of support suggests the presence of a longstanding trend towards lower Treasury yields.

Figure 2. $TYX.X/ weekly
Figure 2. $TYX.X/ weekly

The last reason to remain bullish on bonds is that no one loves them. It was only 3 short months ago that I made "the call" to go long bonds, and at that time, others were calling higher Treasury yields the sure bet of the decade. Wrong! Since early April, long term Treasury bonds have risen some 12% while equities have fallen 12%. Despite this out performance, bonds still get no respect as we can see by this headline taken from MarketWatch last week: "Bond rally reflects gloom - but don't bet on it lasting".

In summary, I believe the dynamics are in place for a secular run in bonds.

 

Back to homepage

Leave a comment

Leave a comment