Bond Bull Refuses To Die

January 6, 2015

Call this the market that simply will not die. As mentioned in some previous posts, just about the time one thinks that this market is finally ready to turn lower marking the onset of the end of the ultra-low long term interest rates and the inception of the new trend towards higher rates, back up it goes and down go the rates.

Between US investors seeking safe havens due to slowing growth and falling crude oil prices, and foreign investors looking for higher yielding alternatives to their own government bonds, ( which pay next to nothing not to mention the currency risk that they are exposed to thanks to the soaring US Dollar), bond bears haven’t a chance in here.

Here is a look at the Daily chart. Notice the ADX/DMI in particular. It generated a solid sell signal the last week of December along with the same in the MACD only to have the signal negated within a week.

US long bond daily chart

Prior to today, bonds have been attracting selling on forays into the 146 zone. Not any more. Today, the buying just kept coming throughout the session. Every time it looked as if they had had enough and were ready to pull back, down went the equities further and up went the bonds.

The close was impressive as it not only punched through the resistance zone noted near 146, but the close was the highest in a long, long time, May of 2013 to be exact! Based on what we got today, there is a good chance these things will try to test the next resistance zone near 148. I still marvel that they are up here at these levels and yet here they are!

So let’s see what we have technically – buy signals on the MACD, the ADX/DMI ( and some other indicators not shown). Price having pushed through the median line of the Bollinger Bands last week and continuing on to hit the top band. Band width is now widening out again after having constricted for the last half of December.

All things considered, the chart is now firmly bullish. Personally I cannot bring myself to buy these things up here but someone sure is eager to own them. That forebodes some very terrible economic news is expected in spite of the rather upbeat expectations for the next US payrolls report. It seems as if the story remains one of SLOW GLOBAL GROWTH ( if any in some places) in combination with no inflation fears whatsoever and geopolitical concerns arising due to Greece and the Eurozone in general.

I for one cannot imaging trying to institute a risk management program for exposure to interest rate risk given the refusal of this market to back down for any length of time. Just about the time we get strong US Data and hawkish talk coming out of the Fed, and everyone begins to sell bonds ahead of the expected hike in short term rates, the rest of the news globally becomes one of deflation and sluggish growth prospects and up they go, taking out all the new shorts who just moved in (me included).

At some point these things will finally end the multi decade bull market but as to when that will occur, I have no idea anymore. For now the bond bulls rule.


Courtesy of Trader Dan

US silver mining began on a large scale with the discovery of the Comstock Lode in Nevada in 1858.