Friday Was a Game-Changer for Bonds Too
With most eyes tuned into Friday's stunning plunge from stocks (SPY) (DIA) (QQQ) (IWM), it would have been easy to overlook the fact that bond prices (TLT) are also falling, reflecting an expected jump in interest rates. Perhaps more important, the surge in rates and breakdown of bond prices both dished out key technical clues -- and cues -- that this may be the shape of things to come for a while.
The chart of 30-year yields and long-term Treasuries tells the story. Each had been range-bound since mid-July, along with the market, with the bond market waiting on the stock market and commodity market to flinch first. As it turns out, they all flinched together.
It's a curious outcome. Usually at least one of the three groups is moving higher or lower. To see all three fall in tandem suggests traders aren't quite sure what the future holds, so they're not buying into anything. Indeed, they're selling everything. Then again, all three had been mostly bullish for a while now, which is equally unusual. Today's move may just be a partial unwinding of their unusual simultaneously strength since the beginning of the year.
The setback for stocks was at least partially sparked by reports that North Korea tested another nuclear warhead. While that's an understandable concern for equity investors, such news would normally be good for bonds as those investors fled to safer instruments. So why are bonds falling and/or interest rates rising. Mostly in speculation that Federal Reserve Governor Lael Brainard will be delivering an unscheduled speech on Monday, which many believe could be an omen of a September rate hike.
Whether we get a rate hike this month or not is irrelevant. The market expects rates to move higher sooner than later, and traders are saying so -- with dollars -- today. Inasmuch as the bond/rate charts both made technical breakouts from well established trading ranges, these news trends should last a while.