The Epic Bond Capitulation - Where's The Bottom?
Hooo boy, all those fund managers who were telling people to go balls to the walls on bonds earlier this year assuming interest rates would be lowered were truly addicted to the era of easy money. Some people have lost a lot recently. And it seems people are trying to now catch the falling knife (including myself, as I will explain).
In the above charts, you can see a popular long term bond ETF on the left (TLT), and long term bond yields on the right, inverted. The reason I inverted bond yields is so we can see more easily how the charts correlate. Looking at these two charts side by side, one can make a guess as to when bond prices may begin to find support. Right around here is a solid long term zone - but there is indeed room for TLT to drop into the mid-high 70's, or even the 60's if yields head towards 9-10%. Traders should be prepared for that.
Yields may indeed continue to push upwards past 5%. The U.S. economy can handle high interest rates. It's just that this is not what we're used to. It's also not necessarily true that a crash MUST happen soon, even considering I have been bearish on traditional markets for the last few years. But maybe that COVID crash was really it, at least for now. Sure, the amount of consumer and national debt is concerningly high. I don't think anyone would be surprised if the market had a huge meltdown, given current economic conditions. Under current circumstances, the likelihood of a black swan market event only increases. However, people would probably be surprised if it did extraordinarily well, and if bond yields continued way up. This is what's often called, "Climbing a Wall of Worry."
There were indeed periods when yields were above 9% and the market still grew. We're just not used to it, so all this repricing must occur. And it's quite the shock.
It's hard to parse out exactly what's going on. But it's possible we are about to finally see "authentic" growth from the stock market, meaning that it increases DESPITE tightening monetary policy. This is actually healthier market growth. In the midst of this, we'd also ideally like to see improved infrastructure and pay increases.
Now of course, if SPX heads below the recent lows, markets could be in trouble, but that remains to be seen.
I have begun entering TLT here, but I do acknowledge that there is further room to fall, perhaps as much as 30% from current levels. The volume looks like capitulation, so even if they fall further we may be due for a relief rally.
As always, this is not meant as financial advice. This is for speculation and entertainment only. I am really winding down my posts on here. If you'd like to stay updated about what I'm doing, please feel free to reach out.
-Victor Cobra
In the above charts, you can see a popular long term bond ETF on the left (TLT), and long term bond yields on the right, inverted. The reason I inverted bond yields is so we can see more easily how the charts correlate. Looking at these two charts side by side, one can make a guess as to when bond prices may begin to find support. Right around here is a solid long term zone - but there is indeed room for TLT to drop into the mid-high 70's, or even the 60's if yields head towards 9-10%. Traders should be prepared for that.
Yields may indeed continue to push upwards past 5%. The U.S. economy can handle high interest rates. It's just that this is not what we're used to. It's also not necessarily true that a crash MUST happen soon, even considering I have been bearish on traditional markets for the last few years. But maybe that COVID crash was really it, at least for now. Sure, the amount of consumer and national debt is concerningly high. I don't think anyone would be surprised if the market had a huge meltdown, given current economic conditions. Under current circumstances, the likelihood of a black swan market event only increases. However, people would probably be surprised if it did extraordinarily well, and if bond yields continued way up. This is what's often called, "Climbing a Wall of Worry."
There were indeed periods when yields were above 9% and the market still grew. We're just not used to it, so all this repricing must occur. And it's quite the shock.
It's hard to parse out exactly what's going on. But it's possible we are about to finally see "authentic" growth from the stock market, meaning that it increases DESPITE tightening monetary policy. This is actually healthier market growth. In the midst of this, we'd also ideally like to see improved infrastructure and pay increases.
Now of course, if SPX heads below the recent lows, markets could be in trouble, but that remains to be seen.
I have begun entering TLT here, but I do acknowledge that there is further room to fall, perhaps as much as 30% from current levels. The volume looks like capitulation, so even if they fall further we may be due for a relief rally.
As always, this is not meant as financial advice. This is for speculation and entertainment only. I am really winding down my posts on here. If you'd like to stay updated about what I'm doing, please feel free to reach out.
-Victor Cobra
