We’re Seeing a Bid In Bonds

July 7, 2022  |  Michael Reilly

This will be interesting to any of you bond buyers out there… 

After a historic meltdown in the first half of 2022, bonds (expressed via Treasuries) are catching a bid.

We can debate all day long why Treasuries are seeing strong demand, but what isn’t up for debate is price… and it’s rising.

Take a look for yourself. Here’s a long-term chart of the 20-Year Treasury ETF – TLT. It’s clearly finding support at both its 2015 and 2018 lows.

Here’s a zoomed-in look at the price reversal we’ve experienced over the last several weeks.

TLT back above prior long-term support is something Bond investors will want to see.

And here’s a look at shorter-term Treasuries via the 3-7-Year Treasury ETF-IEI.

Looking back, we can see that former resistance (in 2010), became support in 2018 and again here in 2022.

In the daily chart below, it’s easy to see a strong reversal back above prior support indicating buyers coming in at this key level.

Why even bother to view previous support and resistance? 

Because the market respects these levels, so we should too!

Do you think bonds pivoting at these levels previously is a coincidence? 

(That’s a rhetorical question, by the way.) 

For me, these are perfectly logical places for bonds to have reversed. 

There’s market memory here. 

So my question is this… is this it? Is this the breakout in bonds after a historic collapse in the first half of 2022?

I’d like to tell you definitively yes or no. But I have no idea. 

No one knows for sure – that I’m sure of. 

The best we can do is continue to watch the direction of the price and adapt accordingly.

Before we call it a day, I want to share one more chart with you. It’s a chart that may have some very important implications.

The yield on the 10-Year Treasury (TNX) (blue line) has been moving consistently higher right through the month of June.

While at the same time, an analysis comparing the Relative Strength of inflation-protected Treasuries (TIPS) began moving lower relative to non-inflation-protected treasuries (nominal).

This, along with the pullback in many commodities, suggests that inflation may have gotten a little ahead of itself.

So think about this… 

If bond prices are going up causing yields to fall, what are the implications for equity markets?

Falling yields take the pressure off the more growthy areas of the equity market. Will some of the beaten-down equity sectors move higher with lower yields?

Stay tuned for more, and until next time, invest wisely…

P.S. To learn more about Rowe Wealth can help you weather the current turbulent markets, you can schedule a free 1-hour consultation here.

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