Tuesday night we held our January Monthly Conference Call, which Premium Members can access and rewatch here.
In this post, we’ll do our best to summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
There have been some fireworks to kick off the new year. One of the biggest developments in 2022 has to be the US 10-year yield breaking to its highest level in two years.
The direction in which yields resolve from their 2021 consolidation will impact all the major asset classes, including bonds, stocks, and commodities. We’re already seeing procyclical assets catch an aggressive bid as the 10-year flirts with an upside resolution.
For now, the path of least resistance is higher. But we still need to see follow-through and confirmation before we can be comfortable that these new highs are here to stay.
When we look at the international bond market, it’s not just domestic Treasury yields that are on the rise. We’re actually seeing rates make new highs all across the developed world.
I don't have a lot of faith in people, or media or economists. But bonds are something we certainly take seriously.
There's no bullshit with them.
The biggest players in the world have no choice but to be intimately involved in fixed income markets. So if you're curious which way the pendulum is swinging, you'll be able to see it in bonds.
Here's a quick look at US Interest Rates making new highs - from the 1yr to 10yr yields these are going towards the upper right:
It seemed like the bond market was heading in the right direction – except for Treasury spreads. The 2s/10s spread was the missing piece of the puzzle, continuing to push toward new 52-week lows…
Until now!
Only a couple of trading sessions into the new year, the bond market is providing plenty of fireworks. Rates are jumping higher across the curve, and critical treasury spreads such as 2s/10s, are following higher:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
With the exception of US large-caps, the market remains range-bound for most risk assets. At the same time, most defensive assets are failing to catch any meaningful bid.
Gold is still chopping around in the middle of its year-to-date range. Bonds continue to trend sideways or lower. The Japanese yen recently hit its lowest level since 2017.
And while the defensive sectors recently made multi-month highs versus the broader market, they're still trading near 20-year lows on a relative basis.
These are the kinds of assets we expect to catch a bid in an environment where investors are fleeing for safety and positioning defensively. But we’re just not seeing that.
At the same time, we haven’t seen many definitive signals supporting a more risk-on tone… until now!
While our risk-appetite ratios remain a mixed bag and most are simply range-bound, we just got a meaningful upside resolution in the High Yield versus Treasuries ratio.
And we already know that Individual investors (AAII) and Financial Advisors (II) are much more bearish going into 2022 than they were over the prior two years.
It's always fun having Paul Ciana on the podcast. You guys familiar with the show have already heard some our conversations over the years. They're always insightful, and he always gets me thinking.
While here at Allstarcharts.com we approach the world through the lens of an equities investor, and use other asset classes as a supplement, Paul does the exact opposite. His days both begin and end with the study of fixed-income markets, commodities, and currencies. Paul is the Chief Global FICC Technical Strategist at Bank of America.
In this episode, we dive right into it starting with the US dollar, gold, crude oil, and the most important currency crosses for stock market investors to focus on.
From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Our focus has been on US Treasury yields in recent months – and for good reason.
The 30-year yield recently undercut its summer lows, and the 10-year yield briefly lost the critical 1.40 level. Both have since recovered. But these crucial rates remain stuck in the same messy ranges that have defined most of 2021.
Given the lack of decisive action in domestic yields, we think it's a good time to check in on the overseas bond markets in hopes of gleaning some insight into the potential direction of yields outside the US.
In today’s post, we’re going to switch things up and take a look at the 10-year yields from other major developed countries.
But more recently, market breadth is getting all the attention. Everyone is a breadth expert now, you notice?
I'm even getting software developers asking me about my breadth analysis wishlist so they can build it for me. Which I love and I certainly appreciate, but just goes to show you another sign of the times.
The way I see it, if you're trying to get defensive NOW because of breadth deterioration, I think you might be looking at it completely wrong.