The fixed income markets tend to not draw a huge amount of attention from the individual trader, even though they are massively traded by institutions.Â Maybe it’s the whole price goes up, yield goes down inverse relationship thing that makes people’s heads spin and keeps them focused on the stock market, and increasingly the foreign exchange market.Â Too bad.Â Fixed income not only directly impacts those other two, it can really be a rewarding market to trade. (If you are unfamiliar with fixed income trading, take a look at this article).
Right now a lot of my attention is on Treasury Bonds.Â This is something I pointed out to readers of my newsletter back in March.Â It was becoming obvious that the pressures were building on the long end of the yield curve which would eventually mean an increase in rates.Â After all, we’ve had huge run ups in gold and oil, the stock market is strong, the global economy is doing well, the Fed is still raising rates, and the dollar has been a little soft.Â It was inevitable that the Bond would start moving lower – yields increase.
At that point June Bonds were trading between 111 and 112.Â The key break was taking out the 110 level, though.Â To me that was the important development.Â That represented a break through real weekly chart support, which signaled a substantial drop.Â There is pretty good support in the 104-105 area from the lows posted during the first half of 2004.Â I think we will eventually see the market testing that area.Â It might take a little while, though.Â The drop from 110 has been fairly sharp, putting the market in a borderline oversold condition.Â Today’s sell-off aside, it would not surprise me if things stalled out for a spell.Â Even still, I still think we see a test of 104-105 by June.
I will be watching the longer-term (monthly) charts quite closely over the next couple of months.Â We’re on the brink of something big, I think.Â More on that later, though.