Bonds and Related Indicators; From NFTRH 490

This morning’s post highlighting Jim Grant’s bond market/interest rate views (by way of Heisenberg) prompts me to reproduce publicly NFTRH 490‘s short bond segment. I may be known as the guy calling yields to decline but in context I am the guy calling for caution at a potential limit area who has appropriately called for yields to rise and decline all through the bond market’s recent history. It is important not to get lost in bias or dogma.

Bonds and Related Indicators

Long-term yields lurk just below our targets of 3.3% (30yr) and 2.9% (10yr). The yields on the short end remain relatively strong as evidenced by the flattening yield curve. This remains a positive macro picture (whether manipulated or not, my job is to play it straight and convey the message of the bond market, not to wear my tin foil hat).

treasury yields

The 10yr is as noted already, at the 2.9% target. The 30yr could have another surge left in it to target, and both of these yields are in similar daily chart consolidations.

tyx

The weekly view of the 30yr shows it holding a neckline that the 10yr already broke through. If TYX were to break above 3.2% and hold it the pattern would measure to 4.2%. So the question becomes whether the weekly pattern or the monthly EMA 100 (limiter) on the 1st chart above would be the driver?

tyx

Meanwhile, the TIP/TLT ‘inflation expectations’ gauge is also consolidating.

tip, tlt

Bottom Line on Bonds

I want to repeat that I am not sponsoring any given outcome. Referring to the 1st chart in the segment, I’ve made a big deal about the 30yr limiter (3.3%) for the simple reason that it has held for decades, and that included some pretty convincing inflation phases along the way. Each time the resolution was downward, sometimes into deflation and other times into a calmer Goldilocks state. The facts of history state that it is a caution point with respect to a pro-inflation, pro-rising rates view.

However, let it be noted clearly here that all trends end eventually (some even while we are alive to see them) and if the 30yr yield breaks out and goes for the weekly chart’s target the bond bull would be proven dead. We are at a key juncture.

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Added on to the NFTRH 490 segment is a reminder that the sentiment situation is contrarian bullish for bonds. This view of the 10yr T Note is very over-bearish by the public and commercial hedgers are right in line with this message as well (very net long what the public hates).

The public was eating this paper up during 2016’s NIRP, when we claimed it was bearish. The public was eating it up into October 2017 as well when we claimed  again and again that rates were going to rise (bonds decline). So… different this time? Maybe, maybe not. But why not let the market decide before leaning too heavily to your preferred view. From Sentimentrader (markups mine)…

10yr treasury bonds

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