Bond Bear Market Coming?
Today’s Spotlight Market
Barring an extreme downturn in the economy, the Federal Reserve will likely begin raising interest? rates later this year.? With those rate hikes, it is conventional wisdom that Bond prices are expected to fall due to the inverse relationship between prices and rates.? The scope and severity of the fall may be more extreme than previously thought.
Fundamentals
The looming interest rate hikes have already been priced into the Bond market to a certain extent.? However, traders have begun to re-evaluate Bonds, both sovereign and corporate, as an investment, as well as the interest rate outlook.? Bond yields must rise in order to be a viable investment option for investors, especially in light of a higher interest rate environment.? There are also liquidity concerns in the bond market, overall, due to the Frank-Dodd Act, which limits federally insured banks from speculating on some assets, including corporate debt.? The sharp bearish turn in German Bunds has made its way across the Atlantic and spread to US Bonds.? Investors dumped Bunds for riskier assets, expecting a Greek deal to be worked out.? ECB Chief Mario Draghi stated that the bank will continue to buy bonds through September 2016, despite signs that inflation has rebounded in the Eurozone.? Draghi?s statement did little to stop the selling, as investors were optimistic about the Eurozone economy.? It is employment week and traders will be focused on job data, especially non-farm payrolls on Friday.? The report is expected to show the US economy adding between 225,000-235,000 jobs in the month of May after adding 223,000 in April.
Technical Notes?? -? View Today’s Chart
Turning to the chart, we see the September Bond contract hitting a new contract low yesterday.? Prices are on the verge of hitting the 200-day moving average.? If the Bond contract closes below the 200-day SMA, it could be seen as bearish in the mid-term.
—————————————————————————————————
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the?“Disclosure Statement for Futures and Options”?prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and?other risks?apply.