The following is an excerpt from this week’s edition of Notes From the Rabbit Hole, NFTRH 488. For NFTRH bonds are not just an asset class ‘throw-in’ but instead are a key indicator set to the entire modern macro. Insofar as it may be time to use them for portfolio balance (I am currently long SHV, SHY, IEI & IEF), so much the better. Many could not wait to buy bonds during US ZIRP global NIRP operations, but today they pay better interest and have a contrarian edge with the entire herd bracing for a bear market.
I last wrote about the 10YR T-Note, 10YR Rate, and the US Dollar (DX) here.
The following monthly comparison chart shows the price action of all three. The US Dollar, generally, trends in the same direction as the 10YR T-Note, but has seen much more volatile swings. The 10YR Rate has recently broken above a very long-term downtrend line and is threatening to break above 3%, a level last hit in January 2014.
Price on the High-Yield Corporate Bonds ETF (HYG) has weakened further since my late-January post.
It’s now trading in between major resistance and support levels of 86.00 and 83.00, respectively, as shown on the following weekly comparison chart of HYG and the Russell 2000 Index (RUT). Volumes spiked to record highs on last week’s decline and the momentum indicator has fallen below the zero level, hinting of further weakness ahead on this timeframe.