The long Treasury bond has been a little tougher to trade since the end of 2015. Last year the yield
was slow to rise despite indications the economy and inflation were both set to accelerate. This
year the yield was slow to fall despite the sharp reversal of inflation. It remains in a down trend
mode currently even though inflation indicators are starting to inch up. $TXY Weekly
The bottom panel of the chart shows the relative strength of the SPX against the USB (long Treas.
price). As seen, emerging, negative sentiment on stocks pushes asset allocators to rotate out of
stocks and into bonds. Interestingly, the bond has enjoyed the lower inflation so much this year ,
that it has held up relatively well against the SPX through much of the year.
I would rate the bond market as still a bit oversold at present levels. The long Treasury % is over
20% higher than it was a year ago (top panel of chart), and is falling below its falling 40 wk. m/a.
You will note from the chart that changes in the direction of the 40 wk. tend to both confirm trend
and suggest that it has further to go.
Should markets players get nervous about the stock market over the next couple of months,
top quality bond yields may decline more (and prices rise) as stock traders seek a safer haven.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!