10-year Treasury Yield (TNX) and 30-year Treasury Bond (TLT) Update

0-year Treasury yields have been the ‘talk of the town’ lately. Many market commentators consider 10-year rates the linchpin for continued equity gains and scapegoat for lack thereof. 

Here is the near-term outlook for 10-year Treasury yields and 30-year Treasury Bonds as published in Sunday’s Profit Radar Report (charts have not been updated, but price has moved in the expected direction).

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30-year Treasury Bonds (TLT) Outlook

The daily chart (end of day prices only) pegs 30-year Treasury Futures at a general support zone (extending slightly above and below the green trend line) and just below trend channel support. There is a bullish RSI-35 divergence with RSI-2 nearly over-sold.

The wave structure since the March 2020 high is not without dispute, but the persistence of the latest decline suggests this is a wave 3 (or C) decline. A bounce (either wave 4 or something more sustainable) could start from around the current support range.

The structure for the iShares 20+ Year Treasury Bond ETF (TLT) looks similar.

A detailed long-term outlook for 30 year Treasury bonds was published in the March 21, 2021 Profit Radar Report.

10-year Treasury Yield Index (TNX) Outlook

TNX (10-yr Treasury Yield Index) closed right at double resistance last week. RSI-2 is nearly over-bought and RSI-35 shows a bearish divergence. Up side momentum has been strong and betting on a reversal takes perfect timing, but the odds for a (temporary) reversal (perhaps wave 4) are higher than at any other point over the past few months.

Below is a list of ETFs linked to 10-year Treasury bonds. Keep in mind that there is an inverse relationship between bond prices and yields. Anyone betting on lower 10-year yields would want to be long 10-year Treasuries while anyone betting on a continued rise in yields would want to own an inverse 10-year Treasury ETF (like TBX, PST, TYO).

iShares 7-10 Year Treasury Bond ETF (IEF)

ProShares Short 7-10 Year Treasury ETF (TBX)

ProShares Ultra 7-10 Year Treasury ETF (UST)

UltraShort Barclays 7-10 Year Treasury ETF (PST

Direxion Daily 7-10 Year Treasury Bull 3X (TYD)

Direxion Daily 7-10 Year Treasury Bear 3X (TYO)

Continuous updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. 

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Could a Bearish Corporate Bond Pattern Sink the S&P 500?

Investors have been finding plenty of reasons to turn bearish on stocks. Here could be another one: A rising wedge pattern for corporate bonds. Is there enough of a correlation between bonds and stocks to tip the scales?

Corporate bonds are carving out a potential bearish pattern (more details below). Is there enough of a correlation between corporate bonds and the S&P 500 to make this worrisome for stock investors?

Figure 1 shows the correlation between the S&P 500 and the iShares iBOXX $ Investment Grade Corporate Bond ETF (NYSEArca: LQD).

The relationship between S&P and LQD runs hot and cold, vacillating between taking the same path and parting ways.

Some have argued that there was a bearish divergence before the 2008 crash, similar to the bearish divergence right now.

This is true, but the interest environment prior to 2007 was different than today, and we know that interest rates affect bonds (and stocks).

Is it possible to make an apples to apples comparison between 2007 and today?

Figure 2 takes interest rates into consideration. The lower graph reflects LQD divided by the 10-year Treasury yield (TNX), which is then plotted against the S&P 500 (upper graph).

At first sight, there are no meaningful parallels between the LQD:TNX ratio and the S&P 500 (NYSEArca: SPY).

However, the LQD:TNX ratio seems to adhere to trend line support and resistance. For example, LQD:TNX has been climbing higher based on the green support trend line and has been kept lower by two resistance trend lines.

Since the LQD:TNX ratio is butting against resistance, it may be interesting to explore what happens if the ratio breaks higher.

This may be the most valuable clue offered by the chart: Generally when the ratio spikes (green arrow), the S&P 500 slides (exception: February 2013).

An LQD:TNX ratio spike would be caused by falling interest rates and/or rising LQD prices.

But here is another caveat: Corporate bond ETFs (represented by LQD) are developing a bearish technical pattern that suggests an upcoming bull trap and fairly significant decline.

This interesting dynamic is discussed in more detail here:

Corporate Bonds Inching Towards Bull Trap Territory

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Most Important Number in Finance is Slipping Out of the Fed’s Control

The Federal Reserve is the most powerful financial institution in the world and yet it is like the emperor without clothes. Ironically, the very force the Federal Reserve is most afraid of may be the only thing to save the Treasury.

Mirror mirror on the wall, what is the most powerful financial institution of them all?

The S&P 500, Dow Jones and pretty much all other markets seem to dance to the tune of the QE rhythm … and yet the Federal Reserve resembles the vain king portrayed in Christian Andersen’s “The Emperor’s New Clothes.” How so?

Rogue Interest Rates

The chart below shows the Federal Reserve’s monetary base sandwiched by the S&P 500 (SNP: ^GSCP) and the inverted 10-year Treasury Yield (Chicago Options: ^TNX).

The purpose of the chart is to show QE’s effect (or lack thereof) on stocks (represented by the S&P 500) and bonds (represented by the 10-year Treasury yield).

The 10-year Treasury yield has been inverted to express the correlation better.

I’ll leave the big picture interpretation of the chart up to the reader, but I have to address the elephant in the room.

Since the Federal Reserve stepped up its bond buying in January, the 10-year yield hasn’t responded as it ‘should’ and that’s very odd (the chart below shows the actual 10-year yield performance along with forecasts provided by the Profit Radar Report).

As of December 5, 2013, the Federal Reserve literally owns 12% of all U.S. Treasury securities and by some estimates 30% of 10-year Treasuries.

Icahn More Powerful Than Fed?

The Federal Reserve basically keeps jumping into the Treasury liquidity pool without even making a splash. If Carl Icahn can allegedly drive up Apple shares (with a 0.5% stake), why can’t the Fed manipulate interest rates at will?  This is just one of the many phenomena that makes investing interesting and keeps the financial media in business.

Conclusion

We do know why the Fed wants low interest rates. Rising yields translate into higher mortgage rates, and a drag on real estate prices. Eventually higher yields make Treasury Bonds (NYSEArca: IEF) a more attractive investment compared to the S&P 500 (NYSEArca: SPY) and stocks in general.

Ironically, what the Fed is trying to avoid (higher yields) may be the only force to save the U.S. Treasury. How can the Federal Reserve ever unload its ginormous Treasury position without the help of rising interest rates?

The emperor without clothes maintained his dignity (at least in his mind) as long as everyone pretended to admire his imaginary outfit. Perhaps a market wide realization that the Federal Reserve isn’t as powerful as it seems may ‘undress the scam.’

Regardless, the Fed’s exit from bonds would likely be at the expense of stocks, a market the Federal Reserve has been able to manipulate more effectively than bonds.

The Federal Reserve owns 12 – 30% of the U.S. Treasury market, but how much of the U.S. stock market has the Federal Reserve financed?

This stunning thought is explored here: Federal Reserve ‘Financed’ XX% of all U.S. Stock Purchases

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Most Important Number in Finance is Slipping Out of the Fed’s Control

The Federal Reserve is the most powerful financial institution in the world and yet it is like the emperor without clothes. Ironically, the very force the Federal Reserve is most afraid of may be the only thing to save the Treasury.

Mirror mirror on the wall, what is the most powerful financial institution of them all?

The S&P 500, Dow Jones and pretty much all other markets seem to dance to the tune of the QE rhythm … and yet the Federal Reserve resembles the vain king portrayed in Christian Andersen’s “The Emperor’s New Clothes.” How so?

Rogue Interest Rates

The chart below shows the Federal Reserve’s monetary base sandwiched by the S&P 500 and the inverted 10-year Treasury Yield (Chicago Options: ^TNX).

The purpose of the chart is to show QE’s effect (or lack thereof) on stocks (represented by the S&P 500) and bonds (represented by the 10-year Treasury yield).

The 10-year Treasury yield has been inverted to express the correlation better.

I’ll leave the big picture interpretation of the chart up to the reader, but I have to address the elephant in the room.

Since the Federal Reserve stepped up its bond buying in January, the 10-year yield hasn’t responded as it ‘should’ and that’s very odd (the chart below shows the actual 10-year yield performance along with forecasts provided by the Profit Radar Report).

As of December 5, 2013, the Federal Reserve literally owns 12% of all U.S. Treasury securities and by some estimates 30% of 10-year Treasuries.

Icahn More Powerful Than Fed?

The Federal Reserve basically keeps jumping into the Treasury liquidity pool without even making a splash. If Carl Icahn can allegedly drive up Apple shares (with a 0.5% stake), why can’t the Fed manipulate interest rates at will?  This is just one of the many phenomena that makes investing interesting and keeps the financial media in business.

Conclusion

We do know why the Fed wants low interest rates. Rising yields translate into higher mortgage rates, and a drag on real estate prices. Eventually higher yields make Treasury Bonds (NYSEArca: IEF) a more attractive investment compared to the S&P 500 (NYSEArca: SPY) and stocks in general.

Ironically, what the Fed is trying to avoid (higher yields) may be the only force to save the U.S. Treasury. How can the Federal Reserve ever unload its ginormous Treasury position without the help of rising interest rates?

The emperor without clothes maintained his dignity (at least in his mind) as long as everyone pretended to admire his imaginary outfit. Perhaps a market wide realization that the Federal Reserve isn’t as powerful as it seems may ‘undress the scam.’

Regardless, the Fed’s exit from bonds would likely be at the expense of stocks, a market the Federal Reserve has been able to manipulate more effectively than bonds.

The Federal Reserve owns 12 – 30% of the U.S. Treasury market, but how much of the U.S. stock market has the Federal Reserve financed?

This stunning thought is explored here: Federal Reserve ‘Financed’ XX% of all U.S. Stock Purchases

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.