Thursday - April 27, 2006
Five Year Note Yield Exceeds 5%
What is holding stock bulls back? Two things mainly: rising interest rates and high oil prices. The 5-year Note Yield ($FVX) moved above 5% yesterday. The one and done crowd grabbed the spotlight last week, but this pullback proven quite minor (gray oval). The Fed follows the bond market and I would not start anticipating a change in Fed policy until the 5-year Note Yield starts to fall. Right now FVX points to further rate hikes and higher interest costs with an upside target around 5.5%.
By Arthur B. Hill - Thu 27-Apr-06 at 12:06PM in Bonds
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Tuesday - April 11, 2006
Bonds Oversold
The fall in bonds has been huge. TLT declined from 93 to 85 in less than three months and the 10-year T-Note Yield moved above 5%. The trend is clearly down for TLT, but also oversold and ripe for a consolidation or even a bounce. TLT formed an inside day yesterday and this is the spot for bottom pickers and those that like to catch falling knives. A bounce in bonds could also boost the non-tech dominated stock indices (SPX, Dow).
By Arthur B. Hill - Tue 11-Apr-06 at 06:21AM in Bonds
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Thursday - April 06, 2006
Yield Curve Turns Positive Again
What makes the “one and done” crowd so excited about interest rates? Probably, the yield curve. After an inversion in February, the yield curve rebounded in March and is positive again. An inversion occurs when the shorter yield (5YR) is greater than the longer yield (10YR). We saw a similar bounce in September, but it failed and the 10YR-5YR Yield Curve is trading back at resistance. The Fed is tightening as long as it trends down. A breakout above 1 would be significant and signal less tightening.
By Arthur B. Hill - Thu 06-Apr-06 at 10:32AM in Bonds
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Wednesday - April 05, 2006
Rates Drop a Wee Bit
A one day drop in interest rates (10-year T-Note Yield) sparked interest rate sensitive stocks. This also caused the US Dollar Index to fall and gold to stall near 585. However, Tuesday’s small decline in rates is not enough to reverse the long-term or even the short-term uptrend. TNX is holding the January trendline and remains with a series of higher highs and higher lows. Many momentum indicators are overextended, but this suggests a pullback, not a trend reversal.
By Arthur B. Hill - Wed 05-Apr-06 at 02:50PM in Bonds
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Tuesday - March 28, 2006
Bond Market Suggests Further Tightening
The second item that could stoke the bulls is a surprise from the Fed. There are two problems here: predicting the Fed language and predicting the market’s reaction. I think the market would react positive to “dovish” words indicating less inflation or moderating growth, both of which would reduce the propensity to keep raising rates. However, as I pointed out yesterday, there is nothing in the 5-year Note Yield ($FVX) chart to suggest a more accommodative stance.
By Arthur B. Hill - Tue 28-Mar-06 at 05:07AM in Bonds
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Friday - March 24, 2006
Rates Also Hold Support
A strong housing report led to higher interest rates and lower bond prices. The 10-year T-Note Yield held support just above 4.6% (46 on the chart). This level stems from broken resistance and the trend for interest rates is up. The FOMC meets next week and is widely expected to boost the Fed funds rate .25% to 4.75%. This is probably the last trading day to establish direction before the pre-fed funk sets in on Monday.
By Arthur B. Hill - Fri 24-Mar-06 at 06:44AM in Bonds
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Tuesday - March 07, 2006
Bonds Gap Down Yet Again
Bonds were rocked yesterday and the iShares ~20-year T-Bond Fund (TLT) gapped below support at 89.7. This was the fourth gap in a row and the bond ETF is nearing support from the November low. Despite this support, I would expect lower prices ahead. TLT broke trendline support in late January, consolidated in February and broke support in March. This signals a continuation of the Sept-Oct decline and a move below 88 is likely. Key resistance is now set at 91.5 and it would take a move above this level to reverse the downtrend.
By Arthur B. Hill - Tue 07-Mar-06 at 07:11AM in Bonds
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Rates Break Out
Rates move up when bonds move down. The 10-year T-Note Yield broke consolidation resistance on Thursday and continued higher Fri-Mon. The breakout forges a 52-week high in the 10-year T-Note Yield and this is not good for interest rate sensitive issues. The next resistance level is around 4.9-5%.
By Arthur B. Hill - Tue 07-Mar-06 at 07:10AM in Bonds
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Friday - March 03, 2006
Bonds Take A Wild Ride
If you think February was a wild ride for stocks, just take a look at the iShares ~20-year T-Bond Fund (TLT). The bond ETF broke support in January and then consolidated in February. The consolidated featured a gap on 17-Feb and a resistance challenge was on. Resistance at 91.5 held firm and TLT gapped down the last two days. The ETF managed to close above the February lows, but these gaps are negative. Further weakness below 89.4 would be bearish for bonds.
By Arthur B. Hill - Fri 03-Mar-06 at 05:18AM in Bonds
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Thursday - February 23, 2006
Rates Gap Down
No matter what the market goes, the market commentators can always find a reason. Yesterday’s excuses du jour were falling oil prices and falling yields. Never mind that falling oil prices may reflect weakening demand and hence a slowing economy. Falling rates also reflect less economic strength as the Fed raises rates when the economy is strong and lowers rates when the economy is weak.
On the chart, the 10-year T-Note Yield gapped down three days ago and continued lower yesterday. This is short-term negative, but not enough to reverse the Jan-Feb surge. For that, rates need to move below 4.5% (45 on the chart). This would be most bearish for rates and bullish for bonds. My guess is that such a move would be accompanied by lower stock prices.
By Arthur B. Hill - Thu 23-Feb-06 at 06:32AM in Bonds
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Monday - February 13, 2006
Bonds and Interest Rates
What’s it going to be for bonds and interest rates? The 10-year T-Note Yield, which moves counter to bonds, broke above resistance with a big surge in late January TNX has since consolidated with some pretty volatile days the last two weeks. The yield surged above 4.6% (46) on 3-Feb and dipped to 4.5% this past Friday. After a weak open on Friday, TNX rallied for a strong close and this reinforces support. Further strength above 4.62% would be bullish for rates (up) and bearish for bonds (down).
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The big action was in the 30-year T-Bond Yield (TYX). As this chart affirms, the 30-year T-Bond Yield (TYX) is much more sensitive to rate changes than the 10-year T-Note Yield. After all, the 30-year is three times longer than the 10-year and this means that changes in interest rates will affect the value much more. The 30-year T-Bond Yield (TYX) gapped down on Friday with an open below 4.5%. The yield recovered by the close, but this gap is bearish for rates (down) as long as it remains unfilled. It would take a move above 4.75% (47.5) to forge a big breakout in rates (break down in bonds).
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The iShares ~20-year T-Bond Fund (TLT) represents the bond market and moves counter to interest rates. TLT moves up when rates move down and TLT moves down when rates move up. TLT gaped down in late January and broke trendline support. However, TLT managed to firm over the last few weeks with support at 90. This bond ETF gapped up on Friday, but closed weak and formed a long black candlestick. This is a pretty important failure and it would take a move above 91.5 for the bulls to get back their edge. Follow through with a move below 90 would be bearish for TLT.
By Arthur B. Hill - Mon 13-Feb-06 at 06:01AM in Bonds
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Thursday - October 06, 2005
Big Support Bounce for Rates
Richard Suttmeier of TheStreet.com advises that the bond conundrum may be ending as the yield on the 30-year treasuries challenges its 200-day moving average. This monthly charts shows TYX challenging its 12-month SMA, but in a clear long-term downtrend. The current decline from 5.6% to 4.15% carried TYX to support and a big double bottom could be forming. An outside reversal formed at the end of July and further strength above the gray trendline extending down from May-04 would be bullish for yields (bearish for bonds). This would also fuel the inflation argument and be bullish for gold.
By Arthur B. Hill - Thu 06-Oct-05 at 07:01AM in Bonds
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Tuesday - September 20, 2005
Signs of Inflation
The iShares Lehman TIPS Bond Fund (TIP) is indexed to inflation and represents a hedge against inflation. In contrast, the iShares ~20-year T-Bond Fund (TLT) is not hedged and this bond would not perform well in an inflationary environment. When TIP outperforms TLT, signs of inflation are present. When TLT outperforms TIP, inflation is under control and not a concern.
TIP is outperforming TLT and this tells me that inflationary concerns are heating up. The TIP/TLT spread declined from late April to mid July and broke resistance in late August. This breakout reflects a preference for TIP over TLT. Moreover, bonds (TLT) usually decline in such an environment and gold becomes attractive.
By Arthur B. Hill - Tue 20-Sep-05 at 05:54AM in Bonds
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Thursday - September 01, 2005
Bonds Concur
Don’t take the Fed’s word on interest rates. Listen to the bond market. The iShares ~20-year T-Bond Fund (TLT), which rising when interest rates fall, traced out a classic correction and broke resistance to signal a continuation higher.
Just as described in the Dow Transports analysis, TLT retraced 62%, found support near the Apr-May consolidation, formed a falling flag and broke resistance with a strong move. The strong rise in bonds (fall in rates) suggest that the Fed is indeed finished raising rates.
By Arthur B. Hill - Thu 01-Sep-05 at 06:15AM in Bonds
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Monday - August 08, 2005
Rate Breakout
The reason for weakness in banks, utilities, REITS and homebuilders is clear: rising rates. The 30-year T-Bond Yield surged to resistance at 4.5%, consolidated and then broke above resistance with a strong move last week. The pattern in June looks like a double bottom (gray oval) and the break above 4.5 projects further strength to 4.83%. Interest rate sensitive stocks will not appreciate such a move.
By Arthur B. Hill - Mon 08-Aug-05 at 08:26AM in Bonds
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Monday - August 01, 2005
Rates Rising
The 30-year T-Bond Yield (TYX) surged in July, consolidated and looks poised to continue higher. TYX established support at 4.15% in June and surged above trendline resistance in July. A two week consolidation ensued (flag) and a break above 4.5% would be bullish for rates (bearish for bonds). Notice that TYX formed an outside reversal on Friday and this establishes support at 4.35%. Watch this support level for signs of bond strength and rate weakness. Otherwise, I expect rates to rise and bonds to fall. This will also impact interest rate sensitive sectors and groups.
By Arthur B. Hill - Mon 01-Aug-05 at 07:23AM in Bonds
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Wednesday - May 04, 2005
Mystery Bulls
It is really hard to find anyone who is bullish on bonds. However, the iShares ~20-year T-Bond Fund (TLT) keeps on rising and these “closet” bulls keep on buying. TLT bottomed in late March and advanced the entire month of April. This advance coincides with declining long-term interest rates and flies in the face of recent Fed action to raise rates.
Two things are certain. First, the majority of pundits are bearish and this makes the bullish case for bonds a contrarian dream. Second, the Fed follows the bond market and continued strength in bonds indicates that Fed tightening is likely to end soon. As long as TLT holds the lower channel trendline and 21-Apr reaction low, the bulls are in firm control.
By Arthur B. Hill - Wed 04-May-05 at 09:29AM in Bonds
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Friday - April 15, 2005
Long Bond Fims
After a reversal in February (red oval) and decline below 90, the iShares ~20-year T-Bond Fund (TLT) found support and caught a bid over the last 3-4 weeks. Prior declines have been sharp and unrelenting (Mar-May 2004 and Jun-Aug 2003). This one is different and could have ramifications for stocks.
TLT broke trendline support in March and firmed in the prior trading range (87-90). The 3-4 week pattern could evolve into a rising flag or wedge, but this would not be confirmed as bearish unless TLT breaks below 88. I find the sudden strength extraordinary, especially when the whole world knows that the Fed is going to raise interest rates. Perhaps the economy will slow enough to prevent a rate rise and keep the Fed on hold. The charts of key cyclical groups suggest an economic slow down in the cards and the bond market usually leads the Fed. If the economy does slow and inflation remains in check, the Fed will stop raising rates and the bond market will firm.
By Arthur B. Hill - Fri 15-Apr-05 at 03:17PM in Bonds
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