Bond Yields Are Testing Crucial Levels

After a rally in bond prices that lasted almost 5 months, contrary to the expectations of many, the current three day correction has activated again important technical levels. Specifically, the CBOE Index of interest rate of 10-yr Note closed yesterday at 3.11, just one basis point below its 200-day simple moving average. This is a rise of 26 basis points in the yield from the low of 2.85 as of the close of Friday of last week. Bond prices plunged in the last three days since they move inversely to yields. Is this the beginning of a new bear market in bond prices?

The chart of the CBOE Index of interest rate of 10-yr Note below indicates that there will be an immediate test of the longer-term moving average support:

The MEI, my proprietary indicator, has just crossed the zero line to the upside and it is building up momentum. The RSI is far from overbought levels.

Below is the daily chart of TLT:

Price has penetrated already its 200-day simpel moving average and it is about to test support at $94. The MEI is building up momentum and, technically speaking, this market can fall to $92 soon.

The reason that TLT, which reflects the performance of the Barclays Capital U.S. 20+ Year Treasury Bond index,  has already crossed its 200-day smiple moving average to the downside is the longer marutities involved. Price changes are more sensitive to yield changes for longer maturities due to the longer duration.

See also:

http://www.priceactionlab.com/Blog/2011/05/was-mr-gross-wrong-about-bonds/

Have a good trading day!

The above analysis was based on 2 different methodologies:                                  

  • Technical Analysis – (mainly trend lines, moving averages and overbought/oversold indicators)
  • MEI Indicator readings - This is a new technical analysis indicator for measuring trend/momentum/oversold/overbought conditions

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)   

Disclosure: no relevant positions.

Disclaimer: The author is not a financial advisor and does not recommend the purchase of any security or advise on the suitability of any trade or investment in any timeframe. ETF, stock, futures, forex and options trading and investing involves substantial financial risks and can result in total loss of capital. If investment or other professional advice is required, a licensed professional should be consulted.

FacebookTwitterGoogle+PinterestTumblrLinkedInBlogger PostDeliciousDiggEmailRedditMySpaceWordPressShare
This entry was posted in Economic Analysis, ETF Analysis and tagged , , , . Bookmark the permalink.

Comments are closed.