After rallying for much of the year, treasuries might start reversing course, based on both fundamental and technical indicators. First, much of the movement in bonds is based on interest rate and inflation expectations. On Thursday, the government’s latest read on consumer prices showing a 1.9% increase on a y/y basis, which topped expectations of a 1.8% gain. The Federal Reserve watches this measure closely, and has a target of 2.0%. If inflation starts to move above that benchmark, then the Fed is more likely to start raising interest rates at a quicker pace. And when inflation looks stronger, bonds tend to sell off and yields inversely rise.
The iShares 20+ Year Treasury Bond ETF (TLT), is a good gauge of treasury prices, and it just flashed a downward signal on a technical basis. For the first time in a few weeks, the Moving Average Convergence Divergence (MACD) turned negative, indicating a reversal in momentum. Furthermore, an uptrend from the beginning of August was broken. Looking to an uptrend from March, the TLT is sitting at support on this trend line, which currently sits at $126. If this level breaks, then on a short- and medium-term time-frame, the TLT is set up for a move lower.
Fundamentals and technicals show that bonds could start reversing course after a solid year of returns. …read more
Read more here: The Big Bond Rally of 2017 May Be Over