The Name’s Bond

The Name’s Bond
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Market On Open, Wednesday 5 June

by Alex King

The yield on the 10-yr US Treasury note has dropped at a rapid rate of knots in recent days as institutional appetite for bond-buying has re-emerged. Generally speaking we may surmise that this means one of two things. Either (i) we’re all doomed because ginormo-crash, ergo big money is rotating into fixed income which they plan to hold to maturity, collect the current fat yield, and likely make a gain on the capital outlay too as more and more folks run for safety, and/or (ii) bigs think that inflation is trending down and/or that the Fed is in fact going to cut rates after all, so they are buying bonds now in order to … you guessed it … collect the current fat yield and likely make a gain on the capital outlay too as more and more folks pile into bonds as they have the a-ha-the-Fed-was-only-joking-about-not-cutting moment.

We may well see a pullback in the yield (meaning a rising yield, meaning a fall in bond prices) in the coming days but right now the move up on bond prices (ie. the move down in the yield) looks convincing; it looks like real money is moving into bonds. And if so that probably means for the second reason ie. that bigs believe inflation is easing and/or rate cuts are coming. And if so, that’s likely bullish for equities too. In recent days, even when equities have sold off pretty hard in the morning and early afternoon (before rallying in the late afternoon), bonds have been rising the whole time. That has looked like a tell, as I’ve said in Slack Chat for our Inner Circle members in recent days; we’ll see if that proves correct.

So let’s get to work.

As always in these notes, today we cover all four primary US equity indices (the S&P500, Nasdaq-100, Dow Jones-30 and Russell 2000); bonds (TLT), volatility (the Vix), oil (USO) and sector-specific ETFs.

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