US Treasury bonds lost upward momentum but remain medium term bullish

One market aphorism ‘buy the rumour, sell the fact” often drives asset prices. Investors bid for instruments when rumours abound and then cash out as cold, hard facts emerge.

The most important event this week was Powell’s testimony to the congress. In that televised speech, the Fed chair quashed any doubts of the July rate cut – but ruled out further accommodative measures. Traders exit some of their bond positions.

Treasury bonds duly corrected. The long-maturity Treasury bond ETF (TLT), for example, lost four points from its recent peak. On July 1, I wrote that TLT’s “uptrend is technically near-term stretched and might be vulnerable to a correction.” Indeed. After three upside attempts, the ETF lost momentum. The next question is how far will the correction go.

Technically, there is support starting at 128, stretching to 126 where the long-term moving average is residing (see below). In other words, TLT’s downside is fairly limited due to the ongoing accommodative central bank policy.

Gold has remained near its peak, although in a choppy fashion. I suspect bonds will do so too. Watch to buy these bonds on further setbacks near support.

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