Bonds are telling the story of this market, and if you’re not listening you’re already behind! 

Growth, inflation, liquidity – it’s all written in the bond market’s moves, making bonds the most critical tool for any trader. 

Period. 

The 2 year US Treasury yield exploded higher the moment the Fed started cutting rates – a massive tell that expectations shifted on a dime, as the chart clearly shows. 

Now that same yield has flipped direction and is plunging lower. You know what that means: liquidity could start flooding the system once again.

When liquidity increases, money doesn’t sit still – it moves fast. 

We’re watching capital rip through the market, rotating in to international stocks like it’s got something to prove. 

The Fed might think they’re steering the ship with their rate tweaks, but the bond market says otherwise. 

It’s the bond market that leads the way – always has, always will.

So here’s the million dollar question: will we...

Look, I get it—this topic comes up again and again, and it can be a bit of a head scratcher.

I keep saying it: inflation is sticky, and the dollar is rolling over.

Yet people ask, "How does that work with a 75% rolling correlation between the dollar and yields recently?"

And that’s a valid question.

Check out this chart—it’s a visual reminder that correlations aren’t set in stone. There are times when the numbers move in harmony and other moments when the link just falls apart.
 

Markets evolve, and so do these relationships.

Here’s the honest truth: correlations are fickle by nature. They can look tight one minute and then unravel the next.

Relying on a strong historical link is like betting on a coin toss coming up heads every time—it’s risky and can easily lead you astray.

If you want to understand where commodity prices are headed, look at the yield curve.

Every major commodity bull market has been preceded by a steepening yield curve—every single one.

📈 When the yield curve bottoms and starts steepening, commodities follow.
 

Look at the last cycle:

• The commodity index bottomed when the yield curve hit its lowest point.
• When the yield curve flipped positive for the first time since 2022, commodities started trending higher.

It’s not magic—it’s liquidity and capital flows. When short-term rates fall relative to long-term rates, the market starts pricing in higher growth and inflation expectations, and commodities are the first to respond.

This is exactly why we’re positioned the way we are. Commodities don’t move in isolation—...

For the market to experience a meaningful correction, we need to see clear signs of defensive rotation—and so far, that hasn’t happened.

In the bond market, U.S. Treasuries are viewed as the defensive play, especially compared to their High Yield counterparts. 

It’s the same concept in equities when you compare Consumer Staples to the broader S&P 500. If the environment favors risk-taking, both Treasuries and Staples should underperform.

Overlaying the Treasuries versus High-Yield ratio (IEI/HYG) with the Staple vs S&P 500 ratio (XLP/SPY), you’ll notice they move in the same direction.

Currently, both are trending lower and making new lows, signaling no defensive positioning from bond or equity investors.

As long as these lines keep trending down and to the right, there’s nothing to worry about for risk assets. But if they start to turn higher, that would be a key warning sign of trouble ahead, potentially...

This chart, hands down, is one of my all time favorites. It tells the entire story.

Bond yields hit their first long term cycle bottom in the 1940s. Then we had the stagflation of the ’70s, followed by the blow off top in 1982. From there, a nearly 40 year downtrend in yields that ended in 2020.

After that, yields have been grinding higher.

Now, if there’s ever going to be a year where bond yields take a breather, it’s probably this one. 

But here’s the thing. In an environment where inflation refuses to back off, any dips in yields are likely to be short lived.

And let me make this crystal clear… just like I’ve been saying for the last five years: Long bond yields are going to have a hard time breaking lower.
 

And as always, be sure to download this week’s Bond Report

 Allstarcharts Team

Find the Winners in Retail’s Report Card. Jeff Macke’s free retail stock report is your key to...

Fed rate cut probabilities are shrinking fast. Just a few months ago, the market was pricing in over 100bps between the 2 year and the Fed funds rate. 

A weaker dollar will drive Bitcoin, gold and silver higher.

The Greenback often dips toward year-end. It’s the usual seasonal pattern.

And this price behavior is even more pronounced in election years. 

If you're living on this planet, credit is everything—it shapes economies and tells us whether we’re in a "risk-on" or "risk-off" environment. 

And there's no better indicator of investor sentiment than the bond market.

With over $140 trillion traded daily, bonds are the largest asset class in the world, spanning all around the globe, from retail investors to governments.

One way we use bonds for information is by analyzing credit spreads as a signal for stress in the market. 

Right now, credit spreads are not warning of elevated risk, they are doing just the opposite. Giving bulls the green light.

Credit spreads are tightening and hitting multi-year highs when comparing junk bonds to treasury bonds.

We’ve overlaid the HYG/IEI ratio with small caps to show how similar the two charts look.

Despite the new highs in HYG/IEI, the S...

Long bonds are sending a message loud and clear these days, and I’m all ears.

When the Fed started cutting rates last month, long-term bonds reversed course lower. They are making fresh 3-month lows this week.

This might seem surprising, but it's not as uncommon as you'd think.

We saw a similar situation in November 2018, when the Fed raised rates, but the bond market didn't buy it, with the TLT rallying for two years.

Now, the Fed is cutting rates, and long bonds are calling their bluff again. This time, by reversing trend lower.

You can see what I mean in the following chart:

If bond prices continue to decline, it likely signals an expectation of rising inflation or stronger economic growth. 

Personally, I’m betting on inflation increasing.

If this is the case, the Fed rate...

Whether markets are full of chop or trending higher, bonds offer a versatile haven for our portfolios.

Take a look at inflation-protected securities, commonly known as TIPS. 

In inflationary environments, these outperform the government bond market.

We think it’s happening now and our intermarket analysis is telling us to buy TIPS.

If you take a look at the chart of the TIP ETF against the 10-year bond ETF, you’ll see consolidation above long-term support. One thing we know about these kinds of consolidations is that they tend to follow through in the direction of the primary trend. 

The trend for TIPS relative to treasuries is higher. 

Historical perspectives, like those found in Jack Schwager’s classic Market Wizards, can offer essential guidance on how to navigate through inflationary periods. I think this is where things are headed.

One effective way to thrive through inflationary periods is by diversifying your portfolio with assets like TIPS (Treasury Inflation-...

Despite the gloomy headlines the market received this summer, major stock market sectors are showing resilience across the board, with new signs of life emerging. 

A shift seems to be on the horizon.

At the moment, we are long bonds. We like bonds, and the charts tell us we are right to like bonds here, but what does the future hold?

If inflation starts ticking up again, the market usually pivots toward the reflation trade—favoring sectors like energy, small caps, and financials as rates rise. (I am not saying that this is happening. I am saying that we need to keep an eye on this.) 

Energy has not participated in the bull run this year. When we compare XLE to some of the best stocks this cycle, like XLK, the performance gap is wild.

The chart below shows XLK up roughly 40% over the trailing 12 months while XLE is negative.

Meanwhile, the rally in bonds appears to be slowing down. 

Bonds have a traditionally inverse relationship with energy stocks, so we think this further sets the stage for a catch-up trade from oil and gas.

Oil...

The stage is set for a strategic shift.

Since this summer, safe haven assets have been catching a bid and outperforming across the board.

Investors are paying attention to growth indicators like ISM and PMI data. Other investors are looking at CPI and paying extra-close attention to the Fed… 

Here's the US Core Inflation Rate along with the 7-10 Year Treasury Bond ETF $IEF. Since inflation peaked and rolled over in 2022, bonds have been building a massive base:

However, similar to economic growth data, inflation is a lagging indicator.

The same is true for employment.

Here's the unemployment rate along with the 2s/10s spread.

We are starting to see some pressure in the labor market, which goes hand-in-hand with rising treasury spreads.

July job openings dropped to 7.67 million, the lowest since January 2021. This marks a significant decline from the March 2022 peak of 12.2 million. 

There were only 1.1 jobs for every unemployed person, down from 2.0 last year. Major declines were seen in healthcare, government, and transportation. Voluntary quits decreased to 3.3 million...