From the Desk of Ian Culley @IanCulley

Are investors really buying bonds, betting on a squeeze higher?

Perhaps it’s just my Twitter feed. (Or are we calling it "X" now?)

I’m perplexed by the growing chatter around picking the bottom in bonds.

Warning: Picking bottoms is never a good look.

It’s unbecoming, especially when there are zero signs of a reversal. (The same applies to tops.)

I understand the Nasdaq 100 had its best first half – like, ever.

But what does that have to do with yield charts?

Rates continue to rise worldwide.

Here’s a look at Germany, France, Portugal, and US benchmark rates:

All are steadily grinding higher following explosive advances last year. Yet none have decisively resolved to the upside from their respective multi-month ranges. 

The European yields posted year-to-date highs in early March, while the 10-year US Treasury yield reached its year-to-date peak last week.

I continue to monitor...

From the Desk of Ian Culley @IanCulley

Rates are on the move again.

The US 30-year Treasury yield $TYX cleared numerous hurdles this week. 

It broke above a shelf of former highs, climbing to its highest level year-to-date. And, perhaps more importantly, it reclaimed its former 2014 high.

Add a potential failed breakdown in the US dollar index $DXY, and it’s starting to feel a lot like 2022.

But should we expect another bloodbath?

…Not necessarily.

Here’s a quick look at the US 30-year yield resolving higher from an 8-month consolidation:

The chart tells the story: Interest rates are kicking off the next leg higher as the underlying uptrend remains intact.

It’s no longer a matter of whether rates will fall later this year. It’s now more a...

From the Desk of Ian Culley @IanCulley

FOMC meeting?

No worry, beef curry!

The markets barely flinched after the Fed raised interest rates – again. 

Honestly, I didn’t tune in to the press conference. I prefer to focus on the tape.

So you won’t get a rundown of Jerome Powell’s forward guidance, or lack thereof, from me.

I can only relay the information provided by the market.  

Obviously, the rising-rate environment remains intact amid sustained inflationary pressures – “higher for longer.”

We can all agree on that.

The true value from Wednesday’s events resides beneath the headlines…

Investors are adjusting to a new rising-rate regime as they accept the unavoidable: inflation.

The US 10-year breakeven inflation rate is shaping up as a potential “not a top” formation:

I’ve noticed similar patterns across stocks and commodities, especially cyclical value-oriented market areas.

It makes sense. The Fed has yet to emerge as the victor.

And the 10-year...

From the Desk of Ian Culley @IanCulley

Bonds are breaking out!

Yes… Bonds!

No, I’m not talking about US Treasuries. Those “risk-free” assets have plenty of work to do before I can take an informed long position.

I’m referring to corporate bonds. Remember, companies have numerous ways to raise capital besides selling shares – bonds being one of them.

But they're not your run-of-the-mill corporate bonds flashing a buy signal…

They’re the issues investors can convert into equity.

Check out the Convertible Bond ETF $CWB:

CWB has traced a classic bullish reversal in price as it completes a yearlong basing formation.

A similar bearish-to-bullish reversal in momentum suggests bulls have taken control, confirming the upside resolution.

More importantly, the breakout in...

From the Desk of Ian Culley @IanCulley

"Sell the two… Utah! Sell the two!"

I’ve parroted my bond outlook during internal meetings and across our Slack channels in recent weeks, partly in jest but mostly to highlight the underlying uptrend in rates. 

Honestly, I’m not crazy about selling the short end of the curve, though I believe there’s a trade there.

Instead, there are far better opportunities with longer-duration bonds.

Shorting bonds isn’t the most popular play with the Fed and the dollar and the CPI… 

But that makes me like this trade even more, especially when I put the headlines and the dominant narrative aside and simply focus on the charts…

Check out the 10-year yield $TNX:

The US benchmark rate remains within a well-defined uptrend, resolving higher from one bullish continuation pattern after another. And it’s showing no signs of a trend reversal.

From the Desk of Ian Culley @IanCulley

Messy, messy, messy.

If there’s one market description I’ve grown tired of more than others – it’s "messy." It’s my pain trade. 

Interest rates, the US dollar, crude oil, gold – you name it! – all are trendless and range-bound.

One of our viewers during yesterday’s live What the FICC? episode offered up an alternative description: ambiguous. I like it!

But there’s one area of the fixed-income, commodity, and currency landscape poised to break free from this ambiguity…

US real yields!

Check out the US five-year real yield challenging a shelf of former highs:

Yes, we’re talking about yields. But I see a potential bullish continuation pattern. 

Remember, we like buying...

From the Desk of Ian Culley @IanCulley

Investors are bidding up growth names.

Perhaps it comes as a surprise, given elevated interest rates.

It did catch me off guard, but it hasn’t stopped me from taking advantage of the developing trend.

I’m not the only one noting the peculiar divergence between rates and tech stocks.

Todd Gordon cited a persistent rise in rates as a potential headwind for the growth trade during Friday’s episode of The Morning Show.

(If you haven’t watched his segment, check it out here.)

One of the charts he shared on the subject has also been on my radar…

Here’s the overlay chart of the US 10-year yield and the Small-Cap Value ETF (IWO) relative to the  Small-Cap Growth ETF (IWN):

The rise in the 10-year yield has driven the outperformance of small-cap value, and cyclical assets more broadly, since early 2021.

That relationship has steadily deteriorated...

From the Desk of Ian Culley @IanCulley

Forget about Wednesday’s FOMC decision.

Yes, investors continue to react, unpacking Jerome Powell’s words while looking ahead to next month’s meeting. It’s a never-ending cycle proffered by unrelenting data.

But it’s this constant flux that makes the market the most engaging puzzle in the world (aside from life, of course).

Yet one piece of the puzzle renders the chaos manageable… 

The closing price.

That’s the main reason I choose to devote the majority of my energy to price charts. The closing price is seldom revised, acting as an anchor during turbulent conditions. 

Call me old school, but price is never wrong.

With that in mind, let’s take a fresh look at a key intermarket ratio many (including me) have labeled “broken”...

I'm talking about regional banks versus REITs.

This ratio belongs to a long list of intermarket relationships that haven’t...

From the Desk of Ian Culley @IanCulley

International credit spreads are contracting.

Investors are running from imminent global collapse by reaching for emerging market bonds over risk-free US Treasuries. 

Wait, perhaps I heard it wrong. 

It could have been a US economic collapse. 

Or was it the Chinese yuan replacing the US dollar as the world’s reserve currency?

Honestly, I don't pay much attention to the doom and gloom. (But I do find it amusing.)  

I’m not the only one ignoring the bad vibes.

The markets are also disregarding the fear mongers…

Check out the Emerging Bond ETF (EMB) versus the US Treasuries ETF (IEF) ratio overlaid with the S&P 500 ETF (SPY):

These two lines follow a similar path – a path currently driven by burgeoning risk appetite.

Investors prefer riskier EM bonds over their safer US counterparts as the EMB/IEF ratio prints fresh highs. So it isn’t surprising those risk-on attitudes are spilling over into the S&P 500 $SPY.

It’s...

From the Desk of Ian Culley @IanCulley

US interest rates have churned within a tight range for months. 

Remember: Sideways is a trend. 

While intermarket evidence suggests a breakdown in yields, they simply refuse to roll over.

It makes perfect sense when we zoom out…

Rates are in a well-defined structural uptrend!

Check out the US 30-year Treasury yield overlaid with live cattle futures:

They look almost identical as both exhibit the classic base-on-base formation – one upside resolution followed by another.

To be clear, I’m not proposing a grand thesis regarding a strong positive correlation between long-duration rates and live cattle futures, or what the next directional move in live cattle and rates mean for AI stocks (though I haven’t dismissed the idea).

Instead, I’m simply observing the trend that began in early 2020. 

I chose to place live cattle futures on the chart for effect – a...

From the Desk of Ian Culley @IanCulley

"You can’t pay me enough to buy US Treasuries."

That’s the message from the bond market.

The result: a persistent rise in interest rates.

Classic intermarket ratios – copper versus gold, regional banks $KRE versus REITs $IYR, and the Russell 2000 $IWM versus the S&P 500 $SPY – all point to lower yields.

This has been going on for months. Some may argue that these ratios are broken or no longer carry significant insight into the direction of rates.

It may be true that the strong relationship between the above ratios and interest rates has indeed decoupled. 

But it’s not solely relative trends hinting at declining yields.

The stocks that benefit the most from a rising rate environment also look terrible on absolute terms…

The ProShares Equities for Rising Rates ETF $EQRR tells the story:

Financials, industrials, and energy comprise over 75% of EQRR. These market...

From the Desk of Ian Culley @IanCulley

Tech stocks don’t care about the manufactured debt limit crisis. Nor are they bothered by the increasing probability of a rate hike next month.

Growth stocks seem concerned with only one thing – printing fresh highs.

The Tech sector ETF $XLK posted new 52-week highs yesterday. And the Communications ETF $XLC rallied within reach after taking out its Aug. ‘22 pivot highs. 

So where does that leave bonds and other long-duration assets? 

If these base breakouts across growth sectors hold, I imagine bonds have some serious catching up to do…

Why?

Growth stocks tend to trend with bonds since they’re both long-duration assets. Changes in interest rates directly impact US Treasuries and affect tech stocks more than other equities.

Check out the tight relationship between the Long-Term Treasury ETF $TLT and the Technology sector $XLK:

...