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Economists and pundits are bending the inverted yield curve development to fit their narrative -- but what does it really mean for the markets?

The inversion of the yield curve (10-Year minus 2-Year U.S. Treasury Yields) this week has been all the rage among financial commentators and pundits. It seems that everyone is trying to fit the development to meet their own market narrative. But what does it really mean for the stock market? Our Chart Of The Day shows the historical initial cycle occurrences of Yield Curve inversions overlayed on the Value Line Geometric Composite. Are there any conclusions to be drawn here? We’ll let you be the judge.

At The Lyons Share, we take a closer look at inversions and what it, if anything, it really means for investors. If you’re interested in this “ALL-ACCESS” version of our charts and research, we invite you to check out the TLS site. Considering the treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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Barring some rather abrupt reversal in the current trend in trade, tariffs, tariffs and even higher tariffs, bonds could have even more upside in their near-term futures. Back in the beginning of April we noted the 30-year treasury bond had a seasonal tendency to dip in April and early May (around the time stocks like to make a seasonal high) before moving higher from sometime in May through the end of August. Thus far this year this trade has been a perfect textbook setup. 

In the following chart weekly bars of the 30-year Treasury bond future appear on top with their seasonal trend since August 26, 1977. The 30-year Treasury bond did dip in April and as trade war concerns grew in May, as stocks slipped, bonds ripped higher. The recent rise has been brisk but considering the retreat in tech stocks further gains are not out of the question.

Bond yields have broken out to multi-year highs, but is this move sustainable?

The ruckus in the equity market the past few days may have caused a more significant markets development to fly under the radar. It comes from the bond market where we see the 10-year (TNX) and 30-year (TYX) U.S. treasury yields breaking out to multi-year highs.

Here's the TYX breaking above the well-defined peaks of the past few years near the 3.25% level.

And here's the TNX hitting its highest levels since 2011. Especially noteworthy as the chart shows, however, is the fact that the yield is approaching the epic Down trendline from its secular peak in 1981.

Now, obviously with a trendline that's been heading lower for more than 3 and a half decades, it is going to take a colossal effort to reverse the downtrend in long-term interest rates. So is the current ramp up the start of that reversal? Or is it just another blip in the still-intact trend lower? In a Premium Post at The Lyons Share, we share our strong view on the matter, including the key levels to monitor in assessing the likely direction of the 10-year and 30-year yields.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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The U.S. 10-Year Yield is testing key trendline support.

The other day, we dedicated a post to the “Hottest Trends” in all of the financial markets. One key market that was on our radar at the time was the 10-Year U.S. Treasury Yield (TNX). However, since the TNX was not quite testing its nearby trendline, we decided to wait. That wait is over, as today’s Chart Of The Day reveals.

As the chart shows, the TNX is currently testing its Up trendline stemming from its July 2016 lows and connecting the September 2017 lows. The “test level” is presently near the 2.85% area. Obviously, the key question is -- will the trendline hold?

In a Premium Post for members at The Lyons Share, we address that question based on our technical and cycle analysis. We also lay out our support and resistance levels that are most likely next in line to get tested, based upon the outcome of this current test.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Plus, our Pre-FALL Sale (25% OFF!!) is going on now so it’s a great time to sign up! Thanks for reading!

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Speculators in 10-Year T-Note futures are once again holding a record short position; will that put a badly needed bid under the market?

Last week, we published an extensive post for TLS members on the prospects for various segments of the bond market. In the post, we mentioned that one of the most favorable factors in the bond bulls’ favor was the “near-record high level” of short interest in the market. Now, we didn’t know at the time, but we could have categorically stated a “record high level” of short interest — at least based on the futures market.

That’s because, according to the CFTC’s Commitment Of Traders report, Speculators are now holding their largest net-short position in the history of the 10-Year U.S. Treasury Note futures contract.

As we have mentioned many times, futures Speculators are often referred to as the “dumb money”. Now, this does not mean that Speculators are always wrong. Rather, they bear that moniker because they are typically wrong at extreme positions and key junctures in the underlying contract. Of course, one of the challenges can be in identifying what constitutes an extreme. However, present circumstances, e.g., the largest Speculator net-short position in history, would certainly appear to qualify as an “extreme”.

So will this huge short position result in a massive short-squeeze induced bond rally? Or will the momentum in rising rates supersede trader positioning in this case? That remains to be seen, but we laid out both the bullish and bearish scenarios in our extensive “Bonds Away?” post last week — including the key levels to monitor in the 10-Year Yield and the market’s most likely path according to our analysis.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Long-term interest rates are facing a potentially key test on their path to higher levels.

Everyone knows that U.S. interest rates have been in a secular downtrend since the early 1980’s. As a result of action taken during the financial crisis, that downtrend accelerated, creating an “extraordinarily low-rate” regime. As we noted at the beginning of 2017, the 10-Year U.S. Treasury Yield (TNX) finally managed to break above the confines of that extraordinarily low-rate regime — and back into the “normal”, multi-decade downtrending rate regime.  In early February of this year, we noted the fact that the 30-Year Yield (TYX) was attempting to break out of its own “extraordinarily low-rate” regime.

As it turns out, the TYX was successful in its breakout attempt, facilitating a swift jump from around 3% up to that resistance that we laid out near the 3.22% level. In the month since, the TYX has gradually pulled back off of that resistance. It is now back down to its “regime-defining” breakout point near 3%. This could be an important test for the long-term rising rates campaign.

In the long-term, we think rates are headed materially higher for years, and even decades, to come. If the 30-Year Yield can hold this ~3% level and rebound in short order, it will bode well for the prospects of a continued march higher for rates in the near-term as well. If the TYX fails to hold here in the 3% area, then it’s a good sign that more work needs to be done, i.e., consolidation or further pullbacks, in the near-term before resuming the long-term ascent.

As always, we will keep The Lyons Share members informed of critical levels on the TYX and TNX — and all of the major markets — on a daily basis in our Daily Strategy videos as well as other Premium Posts. If you are interested in the Premium version of our charts and research, check out our “all-access” service, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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The yield on the 30-Year U.S. Treasury Bond is (again) threatening to break out of its ultra low-rate environment.

Among the most important developments in a busy few weeks in the financial markets has been the rise (and breakout, in some cases) in bond yields. For example, the yield on the 10-Year U.S. Treasury Note (TNX) recently broke above its highs of a year ago and is now testing levels not seen in about 4 years. And as today’s Chart Of The Day reveals, the 30-Year yield (TYX) is testing a potentially consequential level of its own.

Speaking of a year ago, it was about this time last year that we pointed out the notable potential development occurring as a result of the upward action in the TNX. At that time, we introduced the notion of a “regime change” in the bond market. Specifically, we argued that the TNX was possibly emerging from the nearly decade-long “extraordinarily, or ultra, low-rate” regime.

Put simply, the TNX at the time was threatening to break above the Down trendline that had confined it to those ultra-low levels since the peak in 2007. It wasn’t not necessarily that the long-term downtrend in yields that began in the early-1980’s was ending — just the steeper ultra low-rate regime that characterized yields during the financial crisis and its aftermath. If the multi-decade downtrend in rates was to end, however, this signified the first, necessary step.

The TNX did indeed break the post-2007 ultra low-rate, regime-defining line. And as the updated chart below reveals, after several months of successfully testing that line in 2017, we now find the 10-Year yield breaking out to multi-year highs — and possibly on its way to test the post-1981, loooong-term Down trendline (currently ~3.45%).

Finally, after much reluctance, the 30-Year yield is joining the TNX in its ascent. And as the Chart Of The Day below shows, the TYX is now testing its own regime-defining line — the Down trendline from its 2011 top (currently around 3.05%).

Will this line break — and officially break the 30-Year yield out of its own ultra low-rate environment? Eventually, yes, though, whether or not it’s on this attempt remains to be seen. If it does breakout, what is the next upside target? As with the $TNX, likely it will be the upper trendline that has been constraining the TYX since the early 1980’s, currently close to the 4% level.

As always, we will keep The Lyons Share members informed of critical levels on the TYX and TNX — and all of the major markets — on a daily basis in our Daily Strategy videos as well as other Premium Posts. If you are interested in the Premium version of our charts and research, check out our “all-access” service, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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The U.S. 10-Year Treasury Yield has dropped back below the line containing the past decade’s “extraordinarily low-rate” regime.

Among the many significant moves in financial markets last fall in the aftermath of the U.S. presidential election was a spike higher in U.S. bond yields. This spike included a jump in the 10-Year Treasury Yield (TNX) above its post-2007 Down trendline. Now, this was not your ordinary trendline break. Here is the background, as we noted in a post in January when the TNX subsequently tested the breakout point:

“As many observers may know, bond yields topped in 1981 and have been in a secular decline since. And, in fact, they had been in a very well-defined falling channel for 26 years (in blue on the chart below). In 2007, at the onset of the financial crisis, yields entered a new regime. Spawned by the Fed’s “extraordinarily low-rate” campaign, the secular decline in yields began a steeper descent.  This new channel (shown in red) would lead the TNX to its all-time lows in the 1.30%’s in 2012 and 2016.

The top of this new channel is that post-2007 Down trendline. Thus, recent price action has 10-Year Yields threatening to break out of this post-2007 technical regime. That’s why we consider the level to be so important.”

We bring up this topic again today because, unlike January’s successful hold of the post-2007 “low-rate regime” line, the TNX has dropped back below it in recent days. Here is the long-term chart alluded to above.

And here is a close-up version.

As can be seen on the 2nd chart, the TNX has just broken below several key Fibonacci Retracement levels near the 2.30% level -- not to mention the post-2007 Down trendline which currently lies in the same vicinity. Does this meant the extraordinarily low-rate environment is back?

Well, first of all, the Federal Reserve only sets the overnight “Fed Funds” rate -- not longer-term bond yields (at least not directly). So this is not the Fed’s direct doing (and besides, they’re in the middle of a rate hiking cycle). Therefore, the official “extraordinarily low-rate” environment that the Fed maintained for the better part of a decade is not coming back -- at least not imminently. But how about these longer rates?

Outside of some unmistakable influence resulting from Fed policy, longer-term Treasury Yields are decided by free market forces. Thus, this return to the realm of the TNX’s ultra low-rate regime is market-driven, whatever the reason. Is there a softer underlying economic current than what is generally accepted at the present time? Is the Trump administration pivoting to a more dovish posture than seen in campaign rhetoric? Are the geopolitical risks playing a part in suppressing yields back below the ultra low-rate “line of demarcation”?

Some or all of those explanations may be contributing to the return of the TNX to its ultra low-rate regime. We don’t know and, frankly, we don’t really care. All we care about, as it pertains to bond yields, is being on the right side of their path. And currently, the easier path for yields is to the downside as a result of the break of major support near 2.30%.

So how far down do yields have before they hit the next key level of potential support? Check out the Premium post at our new “all-access” site, The Lyons Share, for the specific important levels of potential support and resistance on the 10-Year Yield. If you find our charts and research that we share here helpful and enjoyable, check out The Lyons Share -- we are confident that you’ll find a lot of value in the service.

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