Week in review: What global major bond market is telling us?

greenback

Let's do the weekly recap in a bit different way by focusing on each market separately and giving it a more detailed look.

One thing we shall keep in mind is that the bullish equity sentiment is probably 90% due to the liquidity from central bankers world wide. The second point to note is that the liquidity almost all goes to the bond market, so it is important to see how the bond market is behaving to have a better view of other asset classes.

Let's first look at the weekly bond landscape. It looks like the bond market wants to reverse. Worth noting is that German bund doesn't want to go down the trend line. There are clearly many value investors jumping in at the higher rate, as demonstrated by Bill Gross, though he has been wrong on the Japanese buying US bonds a few months back.

greenback

Nevertheless, the daily chart is showing some hesitation: They are all consolidating at MA20 ...

greenback

The 5 hour chart, nevertheless, shows that the action is consolidating above the bottom made during the last week. The bears simply can't make any lower lows across the board. So I think we should give bulls a bit more time to demonstrate their will.

After all, FOMC will be due next Tue. So whatever happens then, it will either make it or break it. I personally is betting with bond bulls right now by opening a 1/4 position in bond in my retirement account after betting with bond bears last month. However, if bulls cannot break the previous high made on 06/06, we will go back to neutral.

An important point to note is that the usual anti-correlation in equity and bond is broken right now, apparently due to the uncertainty of FED QE. Of course I'm talking their relation on the daily chart.

葡萄柚

如果Fed 不在近期减少QE, 还会出现债券和股市一起涨的情况， 对吗？

greenback

葡萄柚 发表于 2013-6-15 12:17 PM
如果Fed 不在近期减少QE, 还会出现债券和股市一起涨的情况， 对吗？

Yes ... both bond and equity will break out if tapering will be delayed ...

葡萄柚

谢谢老大！

cc2265

Bencat

Kami

contr

greenback 发表于 2013-6-15 11:28 AM
Yes ... both bond and equity will break out if tapering will be delayed ...

支持

aimei

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Happy Father's Day.

葡萄柚

Compared to the decline of the bond market, the pullback of the stock market was quite moderate. It seems that the sectors that experienced the largest pullback are those that are sensitive to interest rate change such as XLU, IYR.   I am wondering why the stock market did not use the potential tapering as an excuse for a larger pullback that is comparable to the one we saw on the bond market.

The decline of US dollar was quite brutal.  Was it caused by investors exiting U.S. bond market?

greenback

葡萄柚 发表于 2013-6-15 10:15 PM
Compared to the decline of the bond market, the pullback of the stock market was quite moderate. It  ...

Very good observation!

The most direct hit by the QE tapering is apparently the TB market. Its decline then leads to the decline of all interest-rate sensitive assets and equity sectors. This is why we ran out of REIT in the early May.

On the other hand, equity investors have been betting on the "Great Rotation" for the money to come out of bond into equity. This expectation has been going on way before the QE tapering. This in part caused the relative stronger performance of equities. Also the US economy is supposed to be better but not worse when the QE tapering eventually happens sometime down the road. So in the longer term, equity should perform better.