The 30yr Treasury yield is doing as expected, dropping from the hysterical high at the 3.45% target. The target for the pullback is 2.5%, which coincides with the uptrending daily SMA 200.
It is so very interesting to me that 2.5% is also the neckline to the monthly chart’s pattern that broke the ‘continuum’ so to speak. You may recall that the pattern itself measures to 4%. A test of 2.5% could actually be the precursor to such a move as it would act as a re-fuel stop after the yield play became overdone into June.
While I am not going to make predictions about the future implications of this situation the fact is that a pair of monthly moving averages that had for decades acted as resistance on the 30yr yield Treasury yield is now set up to act as support. Maybe it is an anomaly with the continuum to ping back toward another substantial deflationary low. But the poetic beauty of this chart is not lost on me and I am going to be paying max attention if/as the 30yr yield approaches 2.5%.
Taking the analysis in chunks, the current chunk – after the ping of the upside 3.45% target – is for a disinflationary phase, either a relatively pleasant ‘Goldilocks’, a deflationary scare or perhaps both (Goldi morphing to a resumed market liquidity issue). A drop to 2.5%, however, would be fertile ground for making macro projections, whether about inflation, deflation or even the yield curve’s turn up from inversion.
Never (IMO) have bonds been so important as they are now to the broader market view. That includes bonds’ role in informing yield curves as well. The 10yr-2yr is very much inverted. Yes, this is usually a precursor to recession as the media trumpet, but it is usually the subsequent turn to steepening that brings on the worst of a ‘bust’.
Agreed, the bond market has never been as important as it currently is, but the bond market IMO has practically always been more important than the stock market (in terms of broader market view). It is also larger in size, although during the dotcom bubble the stock market was for a brief period larger than the bond market (in terms of market capitalization).
Agree that bonds have always provided the key signals. But this time they will do so after changing an important trend if TYX holds 2.5%. That is going to be an epic test, IMO.
I agree with you Gary; it is going to be a generational event. We get more and more of those in financial markets, but I guess that is what happens when you keep leveraging the system to a disproportional degree. The fact that trading is increasingly done by AI machines exacerbates. Is that the new environment we have to get used to? Every 3-5 years a major crisis?