US treasury bonds have been trading sideways for some weeks. This led to some recent daily-scale compression signals in bonds and ten-year notes that broke upward (in price) and downward (in yield) a few days ago. This probably started the next up-leg in this highly artificial bull market that has been sustained by central banks around the world. It seems not to matter that the US Federal Reserve is not currently engaged in bond buying (except for re-investment of coupons and proceeds of course) as there is a great deal of leakage from one jurisdiction to another. Japan is going ‘full speed’ in their efforts and the ECB is also moving aggressively – now US bonds have lurched into life.
Today’s little dip has taken prices back toward the compressed levels, where we expect to find support – as usual. We will be using the dip to buy some bonds, noting however that the support in ten-year notes is considerably further away from current levels than it is in bonds – there is some downside risk here.
