From the Desk of Ian Culley

It’s impossible to ignore – investors are reaching for risk.

Biotech stocks are catching higher. Copper futures are working on their tenth up-day in a row. Even the Emerging Market HY Bond ETF $EMHY is breaking to 7-month highs as it completes a multi-month base. 

And don’t forget about Silver! Gold’s crazy cousin has proven by far the best-performing asset since the US dollar peaked last fall. Strength among these market areas indicates a healthy risk appetite.

I can’t overlook these signs of a constructive bottoming process, especially considering the next chart…

Check out the Emerging Market Bond ETF $EMB relative to the US Treasuries ETF $IEF:

There’s plenty to unpack here…

First, the EMB/IEF ratio is challenging fresh 7-month highs after posting a higher high and a higher low last fall. A bearish to bullish trend reversal is underway for this important risk-on ratio.

You can add this to the growing list of...

It's the weekly bond edition of What the FICC?

Credit spreads around the world are sending a clear message: "Relax."

Check it out!

From the Desk of Ian Culley

If bond markets aren’t stressing, why should we be?

They’re the largest markets in the world. That’s why we constantly monitor credit spreads for signs of structural weakness and elevated risk.

But, as of now, we’re not seeing the slightest hint of impending catastrophe.

Despite the doom-and-gloom headlines popping up in your inbox and financial media talking heads spinning an imminent recession…

Credit spreads around the world are sending a clear message: "Relax."

Check out the overlay chart of option-adjusted high-yield credit spreads:

They’re all contracting to levels from last summer. Even the riskiest CCC-rated spread is reverting lower.

This is the exact opposite of what we would expect if the world was coming to an end and investors were running for the exits.

Instead, market participants are reaching...

It's the weekly bond market edition of What the FICC?

Today we're highlighting potential failed breakouts in European benchmark rates.

Check it out!

From the Desk of Ian Culley @Ianculley

Whether you’re looking across the curve or around the world, interest rates continue to rise.

Benchmark rates in Germany, France, Spain, and Portugal hit fresh multi-year highs last week. Interestingly, the US 10-year yield did not. And neither did the two-, 5-, or 30-year yields.

I’m not claiming US yields have put in a lower high. It’s far too early to assume that. A downside resolution below last month’s pivot lows needs to materialize before making that claim.

Nevertheless, the lack of confirmation from US interest rates is intriguing, especially as European yields turn lower this week.

Check out the triple-pane chart of Developed European 10-year yields (Germany, France, and Spain):

All three broke above their respective Oct. highs, finishing 2022 on a high note. But those breakouts were short-lived as yields are sliding lower this week. 

The lackluster moves from European yields suggest...

From the Desk of Ian Culley @Ianculley

Bonds have endured quite the year.

Perhaps 2022 marks the worst on record, or at least the past 100 years. Nevertheless, we’ve all witnessed extraordinary selling pressure in what has historically acted as a safe-haven asset. 

Despite the dismal returns and destruction of the traditional 60/40 portfolio, the bond market continues to instill valuable lessons in those willing to listen and learn.

Check out these three poignant reminders courtesy of the bond market…

Trends Persist

It’s an oldie but a goodie. And interest rates have refused to let us forget that trends persist.

The chart below highlights the five-, 10-, and 30-year US Treasury yields finding support at their respective year-to-date trendlines and pivot highs from the spring.

I thought rates might follow the...

It's the weekly bond market edition of What the FICC?

Today we're highlighting the breakout in bonds.

Check it out!

From the Desk of Ian Culley @Ianculley  

"Trade what’s in front of you."

We say it all the time.  And it sounds simple enough.

But, with an immense amount of information circulating, it can be difficult to distinguish what’s important. 

That’s why we focus on price. Price filters the noise and useless data.

At the end of the day, it's price that pays. 

So, if bonds are breaking out to fresh multi-month highs, we should buy bonds, right?

Here’s a quick look at the bond market buy signals triggered earlier in the month: 

All three are still in play.

The five, 10-, and 30-year Treasury futures continue to churn above our risk levels. As long as that’s the case, we want to remain long toward our upside objectives...

From the Desk of Ian Culley @Ianculley

Bonds are flying under the radar.

While everyone focuses on the S&P 500 finding resistance at its 200-day moving average, bonds are posting their most substantial rally since the early 2020 peak.

Treasuries have represented downside risk for almost two years. We get it. Nobody's wanted bonds!

Neither have we – until now.

Here’s why…

Momentum

The long-term Treasury bond ETF $TLT has gained almost 20% since late October. In the process, it registered its largest four-week rate of change in a decade (aside from the covid related volatility).

This is what a momentum thrust looks like:

Notice the previous rallies in mid-2021 and earlier this summer (highlighted in yellow).

Both advances failed to produce sustained strength. It not only shows in price but also in the lackluster momentum readings that followed (highlighted yellow in the lower pane).

The...

From the Desk of Ian Culley @Ianculley

The strong US dollar and higher interest rates have dominated the conversation this year.

But the direction of the US Dollar Index $DXY has changed, breaking its year-to-date trendline earlier this month. 

Will interest rates follow?

Not yet! So far, the uptrend remains intact for the five-, 10-, and 30-year yields. We have to give these trends the benefit of the doubt, for now.

Despite their persistence, it seems more a matter of when not if rates do eventually roll over.

Based on information from the US bond market and developed-market European yields, it could happen sooner than you might expect.

Let’s break it down.

First, we can’t dismiss the middle-long end of the curve holding above year-to-date trendlines.

Our outlook remains higher for these yields as long as their trend lines hold. If they...

From the Desk of Ian Culley @Ianculley

Bonds are bouncing off key levels of potential support.

For some, it’s a former low. And for others, it’s a downside extension level. Regardless, we can all rejoice that bonds have stopped falling.

That doesn’t mean we’re rushing out to buy Treasuries. Instead, it signals a constructive start to a potential bottoming process for the bond market and relief from downside volatility.

Let’s check out the charts!

First up is the long-duration Zero Coupon ETF $ZROZ:

ZROZ has rebounded above its former 2014 lows, posting a potential failed breakdown. Risks are to the upside above 82 with potential resistance at the shelf of former lows around 100.

It’s a similar story for the Treasury Bond ETF $TLT:

T-bonds reclaimed their former 2014 lows on Wednesday. As long as TLT holds above 101.50, our tactical...

From the Desk of Ian Culley @Ianculley

Don’t take your eyes off the US dollar and interest rates!

I know it’s been a long year, but we’re finally witnessing early signs of potential trend reversals. The breakdown in the dollar last week confirmed the mounting evidence suggesting the USD has reached its peak.

Now, will interest rates follow?

Check out the dual pane chart of the US dollar index $DXY and the 30-year yield $TYX:

They look almost identical. The recent breakdown in the dollar marks the lone flaw between the two, raising the question…

Will the strong relationship between rates and the dollar hold?

I won’t pretend to know where rates are headed. But if the dollar and rates remain on similar paths, my money is on declining yields at the longer end of the curve.

A falling 30-year yield also makes sense based on a...