alice

NFTRH; A Deep Dive Into the 30yr Bond Yield (high priority)

There is a lot of chatter going on about interest rates with multitudes of chart jockeys noting the bearish state of long-term bonds (bullish yields) and one gentleman on Twitter even promoting the 100 month EMA as a dividing point to secular change; which of course it would be. It could be a coincidence that he chose that particular marker, but we here at NFTRH (and pre-NFTRH) have been using it (AKA the Continuum ™) for well over a decade. So I will take the liberty of weighing in on the indicator.

At the risk of going contrary my own indicator if it actually does decide to break out this time, I want to have us fully abreast of the situation from technical and sentiment standpoints. It is either going to break out and change the macro or it is going to fail yet again. The technicals have the chart nerds at full attention, but sentiment tells another story.

First, the Continuum…

The yield on the long bond is right back up to the limiter this morning. Now please note that in previous instances the yield has spiked above the limiter before recoiling in-month. So a spike above does not necessarily break the limit in and of itself. It would need the confirmation of at least another month above the line.

30 year yield

Here is the daily view of the yield challenging the May high.

tyx

But now let’s transition from the TA view to a sentiment view. The public is hook, line and sinker on board the rising long-term yields play. Absolutely bearish on bonds. The public… they who are usually wrong at turning points. From Sentimentrader

30 year bond sentiment

Now, how about the Commercial Hedgers? They are once again positioned for a rise in the long bond and a decline in its yield.

30 year bond hedgers

The sentiment data are facts. The technical view is the opinion of chartists far and wide. I am a chart guy and I see the potential of a big, macro altering breakout in the yield. I also see bullish looking patterns on the yield over different time frames.

But I also understand that men (and women) who stare at charts are a dime a dozen in this modern market on steroids (made up of man, machine, casino patron, quant, black box, algo and mom & pop in da house lookin’ to make some coin). Everybody sees the same things in their charts and that my friends, sounds like a herd.

Bottom Line

If the 30 year yield breaks the limiter and holds it, we will prepare for a different and perhaps very inflationary outcome. But…

  • The limiter is not yet broken despite the bullish look of the yield across different time frames
  • Dumb money is on the side of the TA and a breakout while smart money is on the other side

That’s the situation as I see it. I am a little nonplussed seeing my own indicator in rotation on Twitter, as if it’s already come to fruition. It hasn’t. If it does we’ll be ready, but we will also have noted the mitigating information in this update.

Thanks to Joe for heads-upping me about the Twitter posts.