From the Desk of Ian Culley @IanCulley
JC asked me how far I thought interest rates would pull back during a recent internal meeting.
The question caught me off guard since I trade bonds, not interest rates. I know my bond trade targets off the top of my head, but not the corresponding rate levels.
As soon as the call ended, I applied Fibonacci analysis to the 30- and 10-year yields…
The 3.50 level marks a logical area for the 30-year yield to stop falling.
That level coincides with a shelf of former lows and a critical retracement level covering the rally off the 2020 low.
The similar level for the 10-year yield stands at 3.25:
Whether rates pull back to these retracement levels is anyone’s guess.
One thing is for certain: interest rates have plenty of room to fall. I wouldn’t be surprised if they slice through these areas if and when the Fed begins to cut rates.
Nevertheless, I still believe we witnessed a generational bottom in yields in 2020 – not a generational low in bonds in 2023.
But we have to trade what’s in front of us.
Rates are coming off a historic rally as bonds and stocks catch higher.
And from the looks of it, the coming year is shaping up to be a doozie for stock and bond market bulls.
Let the good times roll!
Countdown to FOMC
The market is pricing in a pause in the hiking cycle until March 2024 and two cuts before next summer.
Here are the target rate probabilities based on fed funds futures:
Click the table to enlarge the view.
This data is from the CME FedWatch Tool as of December 28, 2023.
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