| It appears that the short term oversold condition in the US Treasury market has been “corrected”. US Treasury markets do trend over the long term, however, over the short term their movements seem rather random. We “try” and trade with the long term trend and just live with the short term noise which means on a weekly basis we probably have a 50/50 chance of being right or wrong…..but from a long term perspective we have a 70/30 chance of not being wrong.
US Treasuries
Long dated or short dated US Treasuries?
Relative Performance of Treasury Markets and Implications for the USD
Emerging Market Bonds. We also note that emerging market sovereign debt (Government debt of emerging market nations) is outperforming US Treasuries. Either which way you look at it, from a fixed income perspective US Treasuries are the last place on the planet to be (albeit on very near the bottom of the pile).
Corporate Bonds What about the corporate bonds? Both investment and high yield corporate bonds remain in bullish up trends. High yield bonds have weakened somewhat as of late (coinciding with weakness in equity markets) however, the weakness has yet to transpire into a bearish sell signal. For now we are treating the weakness in junk grade bonds as a “consolidation”. For us to get bearish on junk grade bonds we need to see corresponding weakness in investment grade bonds.
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So it appears that emerging market bonds are the place to be closely followed by high yield and investment grade corporate bonds, then developed market debt (ex US). The last place to be is in US Treasuries particularly long dated US Treasuries. The action of the world bond markets suggests that we are likely to see a dramatic improvement in world growth and an increase in inflation that will surprise most. From an inter-market perspective this has bullish implications for Equities and Commodities.
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