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Buying Bonds in an Inflationary Environment

October 11, 2024

Whether markets are full of chop or trending higher, bonds offer a versatile haven for our portfolios.

Take a look at inflation-protected securities, commonly known as TIPS. 

In inflationary environments, these outperform the government bond market.

We think it’s happening now and our intermarket analysis is telling us to buy TIPS.

If you take a look at the chart of the TIP ETF against the 10-year bond ETF, you’ll see consolidation above long-term support. One thing we know about these kinds of consolidations is that they tend to follow through in the direction of the primary trend. 

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Risk vs. Reward for the Bond Trade

September 27, 2024

Despite the gloomy headlines the market received this summer, major stock market sectors are showing resilience across the board, with new signs of life emerging. 

A shift seems to be on the horizon.

At the moment, we are long bonds. We like bonds, and the charts tell us we are right to like bonds here, but what does the future hold?

If inflation starts ticking up again, the market usually pivots toward the reflation trade—favoring sectors like energy, small caps, and financials as rates rise. (I am not saying that this is happening. I am saying that we need to keep an eye on this.) 

Energy has not participated in the bull run this year. When we compare XLE to some of the best stocks this cycle, like XLK, the performance gap is wild.

The chart below shows XLK up roughly 40% over the trailing 12 months while XLE is negative.

Meanwhile, the rally in bonds appears to be slowing down. 

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Sink or Swim With Junk Bonds

September 13, 2024

When Junk Bond traders jump ship, I’m out of stocks.

With all the talk about credit spreads “blowing out” since early August, this is an important discussion to have right now.

We always trust the bond market. Throughout history, bonds have done an impeccable job at alerting investors about problems in risk asset markets. 

When there is stress in other markets, it shows up in fixed income first.

However, as technical analysts, we are mindful of the math that is behind some of the relationships we study and give weight to.

What if I told you that industrials have been massive underperformers during this bull market? 

The absolute price chart looks incredible. How could that be?

We call it the denominator fallacy. 

Benchmarked against the S&P 500 or Nasdaq 100, of course they are underperforming. 

We think there is a similar situation playing out for our bond market ratios right now.

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Investors Are Rotating Into Safe Haven Assets

September 5, 2024

The stage is set for a strategic shift.

Since this summer, safe haven assets have been catching a bid and outperforming across the board.

Investors are paying attention to growth indicators like ISM and PMI data. Other investors are looking at CPI and paying extra-close attention to the Fed… 

Here's the US Core Inflation Rate along with the 7-10 Year Treasury Bond ETF $IEF. Since inflation peaked and rolled over in 2022, bonds have been building a massive base:

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The Future of Bonds: Intermarket Insights

August 30, 2024

The current market environment is creating a unique opportunity for bonds. 

With the charts signaling strong potential for gains into year-end, now is the moment to take action and add some bond exposure to your portfolio. 

With some big reversals underway, the timing couldn’t be better to capitalize on these new trends. 

Not only are we seeing a growing list of base breakouts for treasuries, corporate bonds, and bond ETFs, but the intermarket landscape is turning increasingly favorable for fixed income in general.

Let’s jump in and discuss why we’re buying bonds here and how we want to express this thesis.

The fed is giving us a clear indication these days that we’ve seen the peak in interest rates for now. The odds of a rate cut at the September meeting in a few weeks are at 67.5%. 

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Who's Buying Bonds With Me?

August 22, 2024

From the desk of Steve Strazza @sstrazza

For the first time in my career, I'm buying bonds.

It has less to do with positioning defensively and more to do with making a call on lower interest rates.

But what it really comes down to, more than anything, is the chart pattern.

Bond funds are completing bearish-to-bullish reversals for the first time in years. 

This is the same exact pattern we've gone back to time and again this cycle... and every cycle, really.

Rounding bottoms are some of the most reliable patterns we have as technicians.

And we're seeing them across the board in bond funds right now.

Let's dive in and talk about some of them.

Here's the US Aggregate Bond ETF $AGG: 

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The Dust Has Settled. What’s Next for Bonds?

August 11, 2024

From the Desk of Ian Culley @IanCulley

Here’s what happened last week...

A few bad actors used open profits from highly leveraged positions to purchase other assets.

When those highly leveraged positions turned against them – ripping their faces off – margin calls went unanswered, leading to a lack of liquidity.

Bonds ripped, stocks dipped, and credit spreads blew out. 

Now that the dust is settling, let’s review a few takeaways from last week’s volatility and consider what may lie ahead.

Credit Spreads Had it Right

Bonds hinted at a stock market correction months ago as widening credit spreads failed to confirm new all-time highs.  

The increasing stress on credit markets culminated in the High-Yield $HYG versus US Treasuries $IEI ratio blowing out to its lowest 14-day RSI reading since September 2008:

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Bonds Are Back

August 2, 2024

From the Desk of Ian Culley @IanCulley

US Treasuries are sticking a bullish reversal – an admirable feat following an unforgettable selloff.

If you aren’t buying bonds yet, it’s time to reconsider.

Here's the US T-Bond ETF $TLT trading above a rising 200-day moving average as it violates a multi-year downtrend line:

These are the early signs of a trend reversal.

Now, bond bulls want to witness the 14-week RSI post fresh multi-year highs. (We may see such a print following today’s action.)

Heading into the close, the 30-year T-bond is registering its largest one-week rate of change since spring 2020. And on a more tactical time frame, the 14-day RSI is reaching overbought conditions. 

It's Like A Brick Wall

August 2, 2024

The market hates it when bonds are making outsized moves.

It's less about when rates are rising or when rates are falling.

The bigger point here is that when interest rates are making very aggressive directional moves, that's what brings the volatility to the stock market.

And that's exactly what's happening:

Here's What's Actually Driving Things

July 30, 2024

This is where it all starts folks.

The story starts and ends with the Bond Market.

You may not like it. I know I certainly don't. But that's the world we've always lived in. And it's the world I would expect us to be in for a long long time.

The bond market is $130 Trillion. That's compared to a mere $50 Trillion US Stock Market. The total Global stock market is slightly over $100 Trillion, for perspective.