Bonds On A Bullish Bounce
Today’s Spotlight Market
30 year US Treasury bonds have rebounded from their sell off earlier this year. Continued worries of an economic slowdown in China as well as a selloff in metals and crude oil have resulted in rising prices for 30 Year Bonds.
Fundamentals
Bond prices are inversely correlated with interest rates and the aggressive buying of 30 Year Bonds has caused the interest rate to drop. Rates had been on an increase with the anticipation of a Fed rate hike in September. Traders now seem split on the possibility of a September rate hike, as the recent drop in commodity prices further reduces the possibility of increased inflation. In addition, while the European situation has stabilized, there is concern about growth in China. The preliminary Caixin China Manufacturing Purchasing Manager?s index for July was 48.2, down from June?s 49.4. Similar to US indices, a reading below 50 indicates contraction. Contrarians will point to the US Weekly jobless claims coming in at 255,000 which is the lowest since 1973. Strong US employment numbers going forward may point to a September Fed rate hike, which could end the bond rally.
Technical Notes View Today’s Chart
Turning to the 3 month continuation chart, we see a recent bullish pattern emerging. The divergence between the 20 and 50 day Simple Moving Averages (SMA) is narrowing and trader?s will be looking to see if the 20 day SMA will cross above the 50 day SMA. In addition, recent trading has been has seen a series of higher highs and higher lows. This week has also seen trading above both the 20 and 50 day SMAs. 14 day Relative Strength Index (RSI) is currently at a mildly bullish 60.55.
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