About Those Interest Rates…

I tend to cringe when newsletter writers, bloggers and various other would-be geniuses tout their winning calls because for every call broadcast to the world there are usually at least two stinkers that they leave in the closet. So as a lead-in to this post I once again vigorously proclaim and own my mistakes.

But one area I’ve not made mistakes has been in the bond market. A year ago my ears were bleeding with the ZIRP → NIRP risk ‘off’ hysteria. I (and by extension, NFTRH) got bullish the stock market in the depths of Brexit and expected rising interest rates (declining bonds). Then that promptly came to pass and the election of Trump, the great reflator, shot yields and associated sentiment and CoT positioning to unsustainable levels of bond bearishness. Time to get bullish on bonds as Bloomberg and its goofy mouthpiece proclaimed R.I.P. on the bond market.

The bull phase finally came about and as recently as June 25 NFTRH was anticipating a bearish turn. Voila, bearish bonds and rising yields. The play, if not trading bonds directly, was to know how various sectors tend to respond to a given interest rate backdrop. It’s no surprise that the Financials and Banks have flipped bullish, which we also charted every step of the way in NFTRH.

tnx

Now the 10yr yield above has broken the short-term downtrend and would set a new uptrend if it could get above the May bounce high. It’s starting to get overbought (well, bonds oversold) as the herd gets the memo, and could find some resistance here. If the stock market were to correct more harshly, that could limit yields as casino patrons (the amalgam of momos, day traders, substance freaks, black boxes and mom & pop) come flying out of stocks and into bonds.

But for our purposes, we’ll simply note that contrary analysis has worked like a charm in bonds over the last year. Bonds have proven to be a very helpful indicator to me, and when inter-(bond) market dynamics turn a certain way (affecting yield spreads, inflation signals, etc.) it will get really interesting.

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