From the desk of Tom Bruni @BruniCharting
We’ve been waiting patiently for Treasuries and other Sovereign Debt to make a move after flatlining since April.
Yesterday JC pointed out that US Rates made new all-time monthly closing lows, so let’s take a look and identify how we need to be responding.
First, let’s start with a sample of Developed Market 10-Year Yields, including the US. Since the March high in Rates, they’ve gone absolutely nowhere despite the rise in risk assets around the globe, and now they’re starting to roll over again.
The point here is that low Rates are not a US phenomenon, they’re a global one. I mean have you seen the relative performance of US or European Banks lately? Big yikes.
Now let’s move away from Rates and look at Bond futures and ETFs.
Here’s the US 10-Year Note breaking decisively above resistance at 139.50. As long as prices are above that level, then the bias appears higher towards 142.80. Looks like a clean breakout in Bonds to me.
And here are the 30-Year Note Futures, which are attempting a breakout above 182.50-183.00. If we’re above that level, then the bias looks to be higher towards 196.50.
If you can’t trade the futures, the best way to take advantage of this breakout in Treasuries is through the 20+ Year Treasuries ETF (TLT). As long as prices are above 171 on a daily closing basis, then this breakout is intact and we can look for 10% upside towards 188.
Lastly, here’s the trend of the Long-Term Treasury ETF relative to the Short-Term Treasury ETF. The trend is clearly higher here and signals to us that if Bonds are breaking out, the long end of the curve is going to continue outperforming.
In conclusion, the picture remains clear. If Treasuries are breaking out, we want to be long the highest credit quality and longest-duration credit we can be to get the most “beta” out of this move.
In other words, we want to own the 30-Year Treasury Note or 20+ Year Treasury ETF (TLT).
We can argue until we’re blue in the face whether it makes sense for Stocks, Precious Metals, and Bonds to be making all-time monthly closing highs at the same time, but it’s happening and our risk is well-defined on an absolute basis.
At some point this will end, and it may even end badly, but for now, our job is to trade what’s in front of us. Bond markets around the world are telling us that the path of least resistance is still higher…and now that momentum is shifting back to the upside, we’re simply hopping back on for the ride.
That’s our take, but what do you think? Is there more to this Bond breakout than meets the eye? Let us knowIf you enjoyed this post and want access to our premium research, start your 30-day risk-free trial or sign up for our “Free Chart of the Week” to receive more free research like this.