Why Wednesday's Candle In Bonds Piqued Our Interest

JC Parets
November 5, 2020

From the desk of Tom Bruni @BruniCharting

Last week we discussed how Yield Curves across a variety of countries affect certain sectors of the Equity market like Financials.

Today we want to discuss why this week's action could suggest that US Rates are getting ready to "catch down" to the rest of the world.

First, let's start with the 30-Year US Treasury Bond Futures which put in a bullish engulfing candle at support on Wednesday while momentum diverged positively. This suggests that as long as prices are above Wednesday's low, then the bias is to the upside in Bonds at least in the near-term.

Click on the chart to enlarge view.

And part of the reason why we're seeing Bonds in the US catch a bid is that Yields in other developed markets, particularly Europe, are actually pressing towards their March lows.

As we discussed in last week's post, it's unlikely that US Yields are going to be able to continue higher on their own while Rates around the world remain depressed.

Could it happen?

Sure.

But historically, these divergences don't tend to have much staying power over the intermediate/long-term.

To conclude: This week's action across asset classes created a lot of near-term questions for market participants, it also gave us clear inflection points to watch the market against.

For Bonds, if US 10 or 30-Year Yields are below their recent highs, then we can be looking for them to move lower and reconfirm what we're seeing in the rest of the developed world.

As always, thanks for reading and please let us know if you have any questions!

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