TLT Path Of Least Resistance Down Near Term

Bond bears put their foot down near 2.4 percent on the 10-year T-yield. In the best of circumstances, they are eyeing a test of broken support at 2.62 percent – if not, definitely 2.50 percent.


The 10-year Treasury yield (2.43 percent) is trying to rally after having tested last week a 17-month low. Early last October, it peaked at 3.25 percent – coinciding with a peak in US equities, which would then bottom three months later. The 10-year rate, on the other hand, kept making lower highs, bottoming at 2.36 percent in late March. The rally from that low stopped at 2.62 percent, a crucial level going back a decade (Chart 1). The March low was tested Wednesday last week – successfully. At around 2.4 percent lies nine-year support.

Immediately ahead, there is room for the daily to push higher. The 50-day moving average lies at 2.50 percent. After that lies the afore-mentioned 2.62 percent. Until the latter is reclaimed, it remains an oversold rally. Rates have remained below that level for two months now.


Action in the sovereign bond market is rather perplexing given the state of the economy. Granted, the post-Great Recession recovery has been sub-par, with real GDP averaging growth of 2.3 percent versus the long-term average of 3.2 percent going all the way back to 1947. Nevertheless, the economy is a month from completing a decade of recovery/expansion. The job market, in particular, is humming along.

The unemployment rate in April – at 3.58 percent – fell to the lowest since December 1969. In a decade, 20.1 million non-farm jobs have been created.  April added 263,000 jobs, to 151.1 million – a new high. This series is based on the Bureau of Labor Statistics’ establishment survey. The household survey, off of which the unemployment rate is calculated, is beginning to show a slightly different picture. The ‘employed’ count in April fell 103,000 month-over-month to 156.6 million. It already peaked in February at 156.9 million. The green bars in Chart 2 have gone flat to slightly down the last several months. This is too early to read too much into this, but they could very well be leading the red bars. Time will tell. For a while now, bond vigilantes have not been as sanguine as equity investors.

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