Tuesday, August 1, 2023

The Chart That Implied Longer-Term Interest Rates Were Going Higher

On May 18 we posted "One Of Our Favorite Chart Patterns", noting the repeated touches of the 114 area by 10-year bond futures that seemed to offer support over the period March - mid-May. The thing to know about supports that are repeatedly hit is that each visit to the level absorbs more and then more buying power, until eventually the buyers quit buying and the support fails at that price.

Because the chart we used was a dynamic three-month pic I have to replace it with a piece of the one-year chart that includes the bit we highlighted but which also shows the evolution of the price of the futures on the 10-year following that post. 

We happened to get lucky posting on the 18th because that day the bond futures had settled at 113.86 and it was off to the races.

The futures are down 0.45 today giving us a yield of 4.0350% up 0.0760% and seemingly on their was to retest the October 20, 2022 high yield of 4.3330%.

The ensuing decline in yields and the ructions in Japan in October 2022 marked the beginning of the current bull run in the major U.S. equity indices.