US T-bonds are sliding to fresh decade lows. The S&P 500 completed a three-month top last week. And the Nasdaq 100 is on the verge of doing the same.
Those summer highs are receding into the collective memory bank, replaced by new lows and growing unease. Sellers are out in full force.
But instead of allowing the near-term selling pressure and overall choppy conditions to throw us off balance, let’s focus on the one underlying trend tying this market together…
Bonds across the curve are skidding to fresh contract lows as interest rates have a one-track mind…
Higher!
Check out the US 10-year yield posting fresh sixteen-year highs:
Not to be outdone, the 2-year yield just registered its highest level in seventeen years.
Interest rates across the curve are breaking to decade-plus highs in what has become a foot race.
It’s clear that the rising rate environment remains alive and well. An inverted yield curve keeps score, reminding us that shorter-duration yields are winning.
But I honestly don’t care what area of the curve is leading.
Now, Chinese government bonds are pressing toward fresh lows.
Sovereign debt epitomizes downside risk. And Chinese bonds are on the cusp of a significant breakdown – a breakdown that spells more trouble for global bond investors.
Check out the VanEck China Bond ETF $CBON:
CBON aims to track the ChinaBond China High Quality Index (debt mainly issued by the People’s Bank of China). And like US treasuries, Chinese government bonds are flirting with fresh multi-year lows.
US Treasuries have stopped falling – for the moment.
But it’s a mixed bag.
Short setups for long-duration bonds remain in play despite pullbacks underway, while the shorter end of the curve never managed to break down.
It’s messy.
So, let’s run through the US Treasury futures for an updated read on the bond market.
First up is the 30-year T-bond:
The 30-year has broken below a shelf of former lows at approximately 123. It’s a short as long as it’s below that level with a measured target of 113’15.
But the 30-year is finding support at last year’s lows, bouncing higher toward our line in the sand.
Are investors really buying bonds, betting on a squeeze higher?
Perhaps it’s just my Twitter feed. (Or are we calling it "X" now?)
I’m perplexed by the growing chatter around picking the bottom in bonds.
Warning: Picking bottoms is never a good look.
It’s unbecoming, especially when there are zero signs of a reversal. (The same applies to tops.)
I understand the Nasdaq 100 had its best first half – like, ever.
But what does that have to do with yield charts?
Rates continue to rise worldwide.
Here’s a look at Germany, France, Portugal, and US benchmark rates:
All are steadily grinding higher following explosive advances last year. Yet none have decisively resolved to the upside from their respective multi-month ranges.
I’ve parroted my bond outlook during internal meetings and across our Slack channels in recent weeks, partly in jest but mostly to highlight the underlying uptrend in rates.
Honestly, I’m not crazy about selling the short end of the curve, though I believe there’s a trade there.
Instead, there are far better opportunities with longer-duration bonds.
Shorting bonds isn’t the most popular play with the Fed and the dollar and the CPI…
But that makes me like this trade even more, especially when I put the headlines and the dominant narrative aside and simply focus on the charts…