Yield View on Track; Uncle Buck to Follow?

Two ongoing themes in NFTRH of late have been for a rise in interest rates check and a significant bounce in USD x(thus far).

While I have had my challenges with this policy-stoked market just like anyone else, the Treasury bond market has been like child’s play for the last year. That is because bonds have reliably done what contrarian analysis said they should do.

  • Herd over bullish on ZIRP>NIRP>Brexit = bonds tank, yields rise as expected
  • Bloomberg comes out with “R.I.P. Bond Bull” headline featuring Yamada chart cartoon = bonds rise
  • Herd back on the bullish bonds express = bonds drop, yields rise as expected

And so here we are. The 10yr yield is approaching the resistance point noted last week. That would be the May high. There could be some grinding here.

10yr bond yield

But along with the rise in yields, the 10yr-2yr yield curve is also threatening a trend change. It is not so simple as saying ‘yields are rising and will support USD, therefore gold (for example) will get destroyed’. It depends on inter-yield dynamics, not nominals. As noted in NFTRH 455, this bounce in the curve can be reversed at any moment with a sprinkle of financial fairy dust, but as of now the spread is above the MA 50, which is an intermediate trend indicator.

yield curve

Here are nominal yields in pre-market. 2s and 10s are very slightly toward flattening, but the chart above should not be much affected.

yields

Here is the state of Treasury yields (and the curve) on the big (monthly) picture. Those limiting moving averages mean only everything, folks. And on the 5s through 30s they seem to be perched in bullish looking consolidations. The thing is, if yields break through something will have changed for the first time in decades and investing in the broad range of financials markets is going to become fun again because it will no longer be like throwing a dart at the S&P 500 and – in the words of poor old Charlie Sheen – “winning… duhhhh”. The yield curve on this view is still down trending.

treasury yields

Finally, here is Unc. Still not having gotten going. So as of now, I am 50/50 on current expectations for bonds and USD. There is a scenario where yields break out and yet USD weakens. That would be an inflationary scenario, which has not been favored but has come into analytical play.

us dollar index

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