New week, new month and new quarter. Will it bring new money into the equity markets? That question will be answered soon enough as the new quarter begins. There will be plenty of economic data to mull over this week and next. Earnings start next week, and the fourth quarter could be make it or break it time for the markets.
December Treasury Bonds closed higher on Friday after an early morning setback. Greater demand for risky assets helped push yields higher overnight, driving down the T-Bonds.
Treasury Bonds bottomed after a surprise decline in the Michigan Consumer Sentiment Index. This was another sign of a weakening economy. Stocks fell on the news and debt instruments rallied.
Bonds Rally Despite Friendly U.S. Economic Reports
December Treasury Bonds broke on Friday as investors shed safer assets in favor of higher-yielding risky assets. The main trend remained up on the daily chart while the market completed a 50% retracement of the 124’22 to 135’19 range. The first target was 130’17. The market tested 130’12.
December Treasury Bonds posted the rare daily/weekly closing price reversal top this week. On Wednesday, the T-Bonds formed a daily closing price reversal top and on Friday, the market sold off far enough to form a weekly closing price reversal top. Both of these chart patterns suggest that the selling is greater than the buying at current levels.
Stocks Down, Bonds Up as Risk Aversion Creeps into Markets
Tuesday afternoon the Fed announced it was keeping its balance sheet intact while changing the composition of said balance sheet by moving out of mortgages and into long-term Treasuries. This news triggered a strong surge in the Treasury complex, sending the September Treasury Bond to a new high for the year. The move by the Fed is designed to keep the pressure on long-term rates.
Once upon a time (long before Quants, Swaps, and million dollar bonuses) investors knew that they could not know "what the market will do"--- in direction, duration, range, or vacillation. They recognized that neither humans nor human created machines could predict the future with any degree of accuracy. So they learned how to deal with uncertainty.
That’s right I said it – short the 10-year treasury notes. They have been on a huge upswing of late and there will come a time when interest rates HAVE to rise to counter balance the debt structure of the US. It’s not going to happen overnight, but after nearly every single recession bond prices eventually fall hard.
Treasury Bonds Finish Lower after Strong Weekly Gains
September Treasury Bonds posted a loss on Friday, most likely tied to profit-taking ahead of the long holiday week-end and the lack of selling pressure on the equities. Friday’s action appears to be just a temporary slow down in the trend. The weakening economy is likely to continue to underpin the Treasuries.