A Look At Bonds on FOMC Day

Today is FOMC day. You gotta love it.

And I’m not trying to put on any huge bond positions going into this volatility event. But they do look terrible. Yields look like they are consolidating nicely and heading higher. So let’s get right into it.

This is a daily bar chart of the iShares 20+ year Treasury Bond ETF. This just doesn’t look like a bottom to me. I think this thing has another leg lower coming. I currently don’t have a position but probably will before the end of the day/week. A breakdown below this trendline could prove costly for US Treasury Bonds. But I would say that anything above 108.30 is a short-term positive for bonds and reason enough to stay away, at least on the short side:

7-31-13 tlt

Here are 10-year yields. As we know, yields trade inversely to bond prices. And just like Treasury Bond prices don’t look like a bottom, yields don’t like like a top. They just don’t. Here are 3 sets of higher lows within this month-long consolidation. I would say anything below 2.54% would be short-term negative for yields. But again, this just doesn’t look like a top to me:

7-31-13 tnx

In both charts I included the 20 (yellow), 50 (blue) and 200 (red) day moving averages. The fact that bond prices are below them all and yields are above them all is, of course, negative for bond prices. But what’s even more convincing is the actual slope of these moving averages: rising in yields, declining for prices. This to me is the most important thing: the direction of the averages.

So what would another sell-off in yields do to stocks? That’s a big question that affects us all. Let’s remember last time bonds got hit, stocks with yields: Utilities, REITs, Telecoms, etc all got sold the hardest. Not saying we’re due for a round 2, but something we have to keep in mind.

I’m leaning towards entering the bond market on the short side. But keeping an open mind. I believe that this open-minded mentality should always be encouraged, but especially so in an economic data driven week like this.

Good look out there. Go get em!