No One Wants To Buy Bonds

From the Desk of Ian Culley @IanCulley

What a wild broad-market reversal yesterday!

Powell supposedly stated the obvious or blurted out what was on everyone’s mind. I don’t know. I haven’t watched the video or reviewed yesterday’s treasury auction. 

And I won’t.

I’m more interested in the “what,” not the “why,” as the former has proven far more valuable for navigating markets.

Nevertheless, the message is clear: no one wants to buy bonds

It makes sense to me…

Check out 30-year T-Bond futures:

Long-duration bonds are in a clear downtrend, stair-stepping lower.

Last week’s rally in US Treasuries was impressive. But based on the chart, it appears to be a standard retest of the 2022 lows – nothing more.

As far as I’m concerned, bonds continue to trade in a “sell the rip” environment until price proves otherwise.

Here’s one chart that hints at a potential shift underway in the bond market:

Notice the Inflation-Protected Securities ETF $TIP broke to fresh lows last month while the High-Yield Bond ETF $HYG, Investment-Grade Bond ETF $LQD, and US T-note ETF $IEI held above their respective lows.

Perhaps it’s nothing, or just another example of investor hopes for an end to inflation.

On the other hand, TIP’s relative weakness might reveal the initial signs of a significant turn in the cycle. 

As JC candidly points out, stocks have to stop going down before they can go up.

I agree wholeheartedly. But I’m not ready to buy bonds at these levels.

Meanwhile, I’m monitoring the charts for any evidence negating my bearish bias.

Stay tuned!

Countdown to FOMC

The market is pricing in a pause in the hiking cycle until June 2024 following the Fed’s decision to leave interest rates unchanged this month.

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 November 10, 2023.

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