Bonds

[[wysiwyg_imageupload:2232:]]By Levente Mady

The bond market retained its solid bid again last week.  Another Fed meeting and another Treasury debt auction cycle could do not a thing to dent the spirits of Treasury Bond buyers.  While the QEII program continues to sop up some of the supply and - contrary to popular belief - the foreign Central Banks continue to buy bonds, at the end of the day there were more than enough additional buyers to keep the prices moving higher.  Excess liquidity still seems to be abundant as stocks, bonds, precious metals, foreign currencies, etc. all continue to march higher.

[[wysiwyg_imageupload:2018:]]By Levente Mady

The bond market gave up its recent gains and finished dead smack in the middle of its recent 118 to 122 trading range.  I am looking for more of the same going forward.  As mentioned in the wrap up last weekend, the massive liquidity injection by the Bank of Japan is restlessly sloshing around looking for a place to be put to work as an alternative to sitting in cash with a zero percent return.  As a result – in spite of ongoing problems in Europe, the Middle East and the Far East – stocks recovered nicely, the Australian Dollar screamed from 96 to 102 cents US and precious metals continue to forge higher.  Although bonds pulled back to the middle of their recent trading range and I am still leaning toward further downside, I do not expect the market to fall off a cliff.

By Guy Lerner

When I last looked at long term Treasury Bonds, I stated the following:

    "While the bottom for TLT (or top for TBT and yields) appears to be in, it is not clear whether this will lead to a sustainable move that would cause price to break the down sloping trend line seen in figure 2. My hesitation in making the call is my (yet to be presented) intermarket bond model. This model is still bearish on bonds, but it is not unusual for it to lag the technicals at this point. If the model turns bullish on bonds while the technical set up is developing, then I will have greater confidence in the sustainability of this price move."

[[wysiwyg_imageupload:1887:]]By Levente Mady

The bond market traded with a bullish tone early in the week, but could not break through resistance.  As a result it settled back into the middle of the recent trading range and looks content to continue to chop sideways.  The roaring commodity markets have certainly had a muted impact on bonds as the market appears to believe Ben Bernanke’s remarks that the upheaval in oil, silver, cotton, etc. should be just a temporary blip.  Last I checked, the Fed had a less than perfect track record predicting market impacts.  I am not sure if we should expect a higher success rate this time.