Treasury prices rose on Wednesday, pushing short-term yields towards the lowest on record, after the Federal Reserve downgraded its assessment of the economic outlook.Yields had been down before the Fed's decision following dismal May sales results for newly built homes as well as lackluster demand for 5-year notes.
Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 3.08, -0.04, -1.34%) declined 6 basis points to 3.11%, after having touched the lowest level in a month earlier.
Markets are inter-related; what happens in one market bleeds through to other markets. For the last few weeks I've been very attentive to the bond market, watching the chart very closely. The reason is the market is currently in an upswing, riding a very strong trend. We've had several possible topping signals, only to have prices continue to move higher. Now we see that short-term rates are near the lowest on record, which indicates traders are deeply concerned about the economy. Therefore, they are putting their money into the safest investment they can think of: Treasury bonds.
Let's take a look at the long-term chart of the IEFs to get an idea of where we are:
Notice the market was in a long-term head and shoulders pattern. The head represented the panic of 2008, with everybody flocking into Treasuries in a big way. Then we hit point (a) where it looked as though prices were going to exit the panic stage and sell-off as the economy healed. That didn't happen. Instead we saw a second rally in Treasury prices.
The upward trend is line (a). Also note the EMAs are in a very bullish posture -- the shorter are above the longer, prices are above the EMAs and all the EMAs are moving higher. In addition, note that prices are using the shorter EMAs as technical support in the rally.
The technical indicators are now mixed. Yesterday, the MACD gave a buy signal (a) but we're still seeing weaker A/D and CMF numbers (b and c).
The good news is that shorter rates are not at crisis levels. But, they are elevated, indicating there is concern.
Gold has also benefited from the flight to safety, rising from the neckline of the reverse head and shoulders formed in 2008-2009.
Industrial metals formed a double top at the end of last year and the beginning of this year. However, prices have retreated to the Fibonacci area (the area between 38.2% and 61.8%) where they should find natural support.
The good news here is that volume has been declining on the sell-off indicating the worst is probably over.
