As a technical signal, it does not get stronger than bond’s upside breakout last Friday. In other words, government bond yields are crashing down (note: bond yields move inversely to bond prices). The validates my earlier view that yields are ‘vulnerable to a further decline.’
Look at the US 20-year Treasuries ETF (TLT). After a period of loitering beneath the key resistance at 122.50, prices gapped through this ceiling forcibly. Those shorting US government bonds now face a stark choice: Fight the trend or step aside. I believe most will choose the latter for now, thus creating more upward pressure on bond prices.
In the UK, with Brexit now hitting the economy, investors are, too, choosing to hide in the gilt market. The 10-year gilt broke out to new multi-month highs (see below). The next resistance at 126.5-127.0 is likely to be tested in the coming days.
Overall, when the credit market gives a strong signal, you better watch out. The last time bonds broke down in October ’18, stock markets nosedived soon after. This time, bonds are breaking north, leading to a southerly direction for stocks, again.
Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.