It’s Time To Get Bonds Back into the Fold

From the Desk of Ian Culley @IanCulley

The Federal Reserve handed down a 25-basis-point rate increase on Wednesday.

And Fed Chair Jerome Powell implied an impending pause in the hiking cycle.

You know what this means...

It’s time to buy the four "Bs" – Bonds, Bitcoin, Big-Tech, and Bullion.

JC and Strazza talked about it on Pardon the Price Action earlier this week.

Today, I’ll highlight bonds with a couple key levels to trade against as we add these assets to our portfolios.

First up is the 7-10 Year US Treasury ETF $IEF:

It’s not there yet. But if and when IEF reclaims the critical shelf of former lows at approximately 100, we’re long!

The next potential resistance level hangs overhead at last year’s August pivot high of 105.75. This is a logical level to take profits or “feed the ducks.” 

But these trades are more about adding bonds back into the mix after last year’s historic sell-off. These aren’t quick, tactical swing trades.  

Here’s another one, the 3-7 Year US Treasury ETF $IEI:

It’s an almost identical setup.

We want to buy IEI on strength above the 2018 lows at approximately 118. If it’s above this level, we’re eyeing potential resistance at 121.50.

Buying bonds isn’t exciting.

These aren't your vehicles if you’re looking for fast, explosive gains. Plenty of beat-down tech names will likely rally with bonds if that’s what you’re after.

Bigger picture: We want to buy bonds again! That alone speaks to a drastic change in the market environment and the 60/40 portfolio!

It’s all about rates falling, not ripping higher. 

As markets price in falling interest rates, long-duration assets will likely experience a much-needed boost. This includes bonds, big tech stocks, bitcoin, and, of course, gold!

Many of these assets kicked off rallies last week. 

Now we wait for upside follow-through to confirm a trend reversal and usher in a new market environment –  one more familiar and far more forgiving to those holding bonds. 

Stay tuned.

Countdown to FOMC

After yesterday's 25bps increase, the market is pricing in a pause in the hiking cycle at the May meeting.

Here are the target rate probabilities based on fed funds futures:

Click the table to enlarge the view.

This data is from the CME FedWatch Tool as of March 23, 2023.

Thanks for reading. As always, be sure to download this week’s Bond Report!