Here’s Why Bonds Just Got a Lot Cooler

From the Desk of Ian Culley @IanCulley

Bonds are breaking out!

Yes… Bonds!

No, I’m not talking about US Treasuries. Those “risk-free” assets have plenty of work to do before I can take an informed long position.

I’m referring to corporate bonds. Remember, companies have numerous ways to raise capital besides selling shares – bonds being one of them.

But they're not your run-of-the-mill corporate bonds flashing a buy signal…

They’re the issues investors can convert into equity.

Check out the Convertible Bond ETF $CWB:

CWB has traced a classic bullish reversal in price as it completes a yearlong basing formation.

A similar bearish-to-bullish reversal in momentum suggests bulls have taken control, confirming the upside resolution.

More importantly, the breakout in CWB represents a bullish data point for equities. 

Yes, equities. Not bonds!

The only bonds breaking out are the ones that, one day, with a little luck, could become stocks.

If you have an itch to buy bonds, skip the hassle and go straight to the stock market.

Microsoft $MSFT is printing new all-time highs while the Dow Jones Industrial Average $DJIA is posting fresh 52-week highs. 

That sounds like a great environment to buy stocks to me. And those are only two data points from myriad supporting bullish evidence.

I understand. I’m human. I get the itch all the time. Ask any of my brokers (better yet, please don't).

If you must own bonds, CWB is the best-looking vehicle.

But it’s not for me. I laid out last week what I need to witness before getting long US Treasuries, mainly bullish data in the form of price.

I’ll continue to steer clear of bonds until the market proves otherwise.

Stay tuned!

Countdown to FOMC

The market is pricing in a 25-basis-point hike next week.

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 July 20, 2023.

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

And let us know what you think.