Category: Fixed Income

Treasury, municipal and corporate bonds

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Gold hesitant response to weak Dollar

Ten-year Treasury Note yields are re-testing resistance at 2.00%. Recovery above 2.25% would indicate the correction is over and a rally to test the key resistance level of 3.00%. 13-Week Twiggs Momentum below zero, however, continues to indicate a primary down-trend. Failure of support at 1.85% would signal a test of 1.65%.

10-Year Treasury Yields

The Dollar retreated from long-term resistance at 100 as expectations of higher interest rates eased. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Respect of support at 95.5 would confirm.

Dollar Index

* Target calculation: 100 + ( 100 – 90 ) = 110

Gold rallied on the back of a soft dollar and weak interest rate outlook, but failed to hold above $1200/ounce. 13-Week Twiggs Momentum below zero continues to indicate a primary down-trend. Follow-through below $1180 would warn of another test of support at $1140/$1150, while a rise above $1220 would test $1300.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold rallies on Fed “dovish” statement

The Fed Open Market Committee (FOMC) dropped the word “patient”, but market bulls responded positively to its “dovish” post-meeting statement. Jeff Cox at CNBC writes:

… the mostly dovish statement made little fanfare over eliminating the word, and in fact stated specifically that “an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting,” a phrase missing from previous communiques……

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the statement said.

Like I said: “…. Janet Yellen will move when the time is right. And not before.”

Ten-year Treasury Note yields broke through 2.00%, warning of another test of primary support at 1.65%. 13-Week Twiggs Momentum below zero continues to signal a down-trend. Recovery above 2.00% is unlikely, but would signal a rally to 2.50%.

10-Year Treasury Yields

The Dollar retreated from long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Respect of support at 95.5 would indicate continuation of the trend.

Dollar Index

* Target calculation: 100 + ( 100 – 90 ) = 110

Gold rallied on the back of a softer dollar and weaker interest rate outlook. Expect a rally to test $1200/ounce, but respect of this level would reinforce the primary down-trend. Breach of support at $1140/$1150 would confirm. 13-Week Twiggs Momentum below zero strengthens the bear signal.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold falls as Dollar soars

Ten-year Treasury Note yields are testing support at 2.00%. Recovery above 2.50% would indicate another test of 3.00%. But 13-week Twiggs Momentum below zero continues to signal a down-trend. Another peak below zero would warn of a decline to test the all-time low at 1.40%. Breakout above 3.00% appears remote at present, but would signal the end of the secular (20+ year) down-trend.

10-Year Treasury Yields

The Dollar is on a tear, testing long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Breakout would offer a new target of 110*, but first expect retracement to confirm the new support level.

Dollar Index

* Target calculation: 100 + ( 100 – 90 ) = 110

Gold

Gold fell through long-term support at $1200 and is testing the last line of support at the recent lows of $1140/$1150 per ounce. Reversal of 13-week Twiggs Momentum below zero warns of another (primary) decline, with a target of $1000*. Breach of support at $1140 would confirm.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Dollar breaks out, Gold tests support

The 5-year breakeven rate for inflation — calculated by deducting the yield on 5-year TIPS from the 5-Year Treasury yield — rallied in recent weeks and is testing resistance at 1.60%. But the long-term trend is down and we should expect another test of support at 1.2%.

5-Year Treasury Yield minus 5-Year TIPS yield

Apart from Japan, deflationary pressures are rising in all major OECD countries. Given the global trend, the Fed is likely to raise interest rates at a leisurely pace. Expect low inflation and low interest rates for the next 2 to 3 years.

10-Year Treasury yields rallied along with the inflation breakeven and are now testing resistance at 2.15%. Breakout would test the descending trendline around 2.40%. But reversal below 2.0% remains as likely and would signal another test of 1.65%.

10-Year Treasury Yields

The Dollar

The Dollar Index broke through resistance at 95.50, offering a medium-term target of 100*.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Low inflation undermines support for gold. Spot Gold is testing long-term support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. Breach of support at $1200 would signal another decline, while follow-through below $1150 would confirm.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold and the impact of Beijing on Fed monetary policy

The prospect of higher interest rates is fast approaching, but 10-Year Treasury yields retreated below 2.0%, warning of another test of the December low at 1.40%.

10-Year Treasury Yields

The weight of foreign purchases, for reasons other than yield (dollar peg/currency manipulation), may be overwhelming the market response. This has happened before, in 2004/2005, when the Fed was alarmed to find that long-term yields failed to respond to monetary tightening. The graphs below are from a 2012 report by DO Beltran (and others) at the Fed. The Fed Funds Rate was steadily increased between mid-2004 and the end of 2005, but 10-year yields declined slightly over the same period.

Fed Funds Rate and 10-Year Treasury Yields

The reason was fairly obvious: a massive surge in foreign purchases (mainly from China) had left the long-term market awash with liquidity. US monetary policy was effectively being controlled from Beijing.

Foreign Treasury Purchases

I cannot understand why this abuse has been tolerated.

The Dollar

The Dollar Index has been consolidating for the last 5 weeks, but the narrow range is a bullish sign and the Dollar is likely to strengthen further. Breakout would offer a medium-term target of 100*.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Spot Gold is testing support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. A trough below the zero line would strengthen the bear signal.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

The strong Dollar, low inflation and higher interest rates all point to another decline, but so far support has held firm. Completion of another trough at this level would strengthen the argument that gold is forming a long-term bottom. Possibly with help from Beijing.

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Gold and the bull-trend in bonds

10-Year Treasury Yields found support above the December low of 1.40%, recovering above medium-term resistance at 2.00%. The outlook is hardening around a Fed increase in short-term rates by mid-year. A higher trough would suggest that the long-term down-trend in yields, shown below on an annual chart, is coming to a close. But only breakout above resistance at 3.00% would confirm that the secular bull-trend in bonds has ended.

10-Year Treasury Yields

The Dollar is strengthening on the back of low inflation and expectations of higher rates — bearish signs for gold.

Dollar Index

Spot Gold remains in a bear trend, testing support at $1200/ounce.

Spot Gold

Reversal of 13-week Twiggs Momentum below zero warns of another decline. A weekly close below $1180 would strengthen the bear signal.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold resurgent despite stronger Dollar

The Fed has signaled a “patient approach” to raising interest rates, causing long-term yields to fall. Ten-year Treasury Note yields broke primary support at 2.00%, signaling another test of the 2012 low at 1.40%. Declining 13-week Twiggs Momentum below zero confirms continuation of the down-trend. Recovery above 2.00% is unlikely, but would warn that the down-trend of the last 12 months is ending.

10-Year Treasury Yields

The Dollar Index is headed for a test of long-term resistance at 100. Rising 13-week Twiggs Momentum signals a strong (primary) up-trend. Retracement to test support at 90 remains a possibility, but the likelihood of reversal below this level is remote.

Dollar Index

* Target calculation: 90 + ( 90 – 80 ) = 100

Gold

Despite the rising Dollar, Gold continues to test resistance at $1300/ounce. Breakout would signal a rally to $1400/ounce, but trend reversal is unlikely. Retreat below $1200 would confirm a long-term target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

The Gold Bugs Index, representing un-hedged gold stocks, displays a similar picture. Breakout above 200 would signal a rally to test the declining trendline around 250, but reversal of the primary down-trend is unlikely.

Gold Bugs Index

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Dollar rises as yields fall

Flight to safety is driving demand for the Dollar, with the Dollar Index breaking resistance at 90 to signal a long-term up-trend.

Dollar Index

Long-term Treasury yields are falling in response to a lower inflation outlook. But foreign Treasury purchases may also be a contributing factor, with China seeking to protect its advantage in export markets.

10-Year Treasury Yields

Expect strong support at 1.40 to 1.50 percent. Yields are unlikely to fall below that level unless there is a serious risk of deflation. Recovery above 3.0 percent appears some way off, but would warn that the 30-year secular bull market in bonds is coming to an end.

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Stronger dollar, weaker gold

Ten-year Treasury Note yields retreated below 2.30%, signaling another test of primary support at 2.00%. Declining 13-week Twiggs Momentum below zero suggests a continuing down-trend. Recovery above 2.40% is unlikely, but would warn of a rally to 2.65%.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

The Dollar Index is testing resistance at its 2008/2010 highs between 88 and 90. Rising 13-week Twiggs Momentum indicates a healthy (primary) up-trend. Expect retracement or consolidation below resistance, but failure of support at 84 is unlikely.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

Gold

Low inflation and a strong dollar reduce demand for gold. Low interest rates reduce the carrying cost of gold, but the appeal is muted when inflation expectations remain low. Gold is testing its new resistance level at $1200/ounce. Respect is likely and would confirm a long-term target of $1000*. Declining 13-week Twiggs Momentum below zero indicates a strong down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Dollar rising, Treasury yields trend lower

The rally in ten-year Treasury Note yields continues. Expect resistance at 2.50% (the descending trendline). Respect would warn of another test of primary support at 2.00%. 13-Week Twiggs Momentum below zero continues to signal a primary down-trend.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

A monthly chart of the Dollar Index places the current advance in its long-term context. Expect resistance at 88 to 90, with a possible correction to test support at 84. But the primary trend is up and breakout above 90 would offer a long-term target of 105. Rising 13-week Twiggs Momentum suggests a healthy (primary) up-trend. Failure of support at 84.50 is unlikely.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

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