Are long-dated treasury bonds and interest rates the current political football?
Sure seems that way considering all the Federal Reserve talk and comments by Trump on rates and Jerome Powell.
The last couple of days, after rising bond yields and a big drop in the 20+ Year Treasury Bond ETF (TLT), the trend may have reversed.
Why is this important?
I believe TLT is a gateway to assess risk on or off in the market.
We like to compare the performance of the long bonds using the 20+ year bonds or TLT) to the performance of the high yield, high debt bonds ETF (HYG).
We also like to look at the long-dated bonds compared to the S&P 500.
The monthly chart is another longer-term view to watch, especially as we examine both the (23-month) and (80-month) moving averages.
We liken both these moving averages to business cycles, 2-year and 5-6-year respectively.
Currently, the monthly chart shows the long bonds trying to get back over the 23-month moving average.
That could be significant as October ends for the bonds and equities markets.
For one, it could be simply that the anticipation of lower rates both here and abroad is good for the sectors that have been waiting for lower rates.
These sectors include the financial, small caps, transportation, and regional banks.
However, it could also mean that fear is returning to the market, so we will watch for that too.
One key price point for the TLT to clear is 100. That is recent resistance.
Looking at the Daily chart,
The bottoming formation or confirmed reversal pattern happened 2 days ago.
TLT though, continues to underperform the S&P 500.
Real Motion (momentum) is in line with the price action.
TLTs are also under performing HYG (not shown).
This all means that while TLT has bounced from the recent lows, the rally is more noise than a sea change.
And that is great for the core stock market ETFs that we watch.
Twitter: @marketminute
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.
