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Bond Market Calling Fed

Published 01/22/2022, 11:58 PM
Updated 07/09/2023, 06:31 AM

Does the chart below suggest yields have topped for now? A weekly candle that fails to close below the 200-WMA after testing it for the 1st time in nearly 2 years could be a tell.

Bonds have often foretold shifts by the Fed—policy reversals, or hard stops in this case. The US yield curve started flattening 12 months after the end of the 2020 recession. The 10-2 curve never began flattening so soon and so deep after the end of a recession. This only highlights the unsustainable and illusory nature of the past 24 months.

A prolonged drop in yields next week could accompany a catch-down by the S&P 500 and DOW30 with its Tech peer and print their own 10% drawdown at 4300 and 33000 respectively.

Falling yields could be brought about by a sudden turn to the worse on the Russia-Ukraine front. More realistically, it could result from Fed Chair Powell sounding unfazed by the market turmoil on Wednesday's FOMC presser, as the curve flattens further. Think about it.

Bitcoin meanwhile, could well retest the $30K support level, but the recovery should emerge faster and more "violently" than the March decline of 2021. Finally, gold and silver continue to do everything "right" so far. 

US 10 Yr Yield Weekly Chart

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