Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Global Bond Selloff Ahead?

Published 10/03/2018, 12:25 AM
Updated 07/09/2023, 06:31 AM

Quick post. Here's a chart I featured in a recent report on global bonds. It's also one of the resident charts in the global-scan page of my weekly market chart pack....

TO THE POINT: global sovereign bond market breadth is looking sick.

Global 10-Y Sovereign Bond Breadth 2012-2018

Why does this matter? (and what does it even mean??)

Firstly, definitions. The red line is the 200 day moving average breadth of global sovereign bond yields (developed markets). i.e. what proportion of global government bond yields are trading below their 200 day moving average (I say below to make it consistent with the stock market version of this indicator... i.e. 100% reading for this indicator is a sign of strength across global bond markets).

So what does it mean? Basically we are seeing fewer and fewer 10-year government bond yields trading below their 200 day moving averages. In my view this represents a progression towards a trend change in government bond yields - the writing is on the wall.

The market where this is most evident is the US 10-year government bond yield (but we're seeing clear signs of a potential longer term trend change across other countries too).

Speaking of US treasuries, in the context of today's discussion, the chart below is really interesting. Basically you have the US 10-year government bond yield looking set to break higher, but at the same time bond market volatility is tracking around record lows.

US Treasuries vs Bond Market Volatility 2009-2018

It's a cliché, but the old markets rule of thumb is that low volatility is a good predictor of future higher volatility. And in fairness, we've often seen a particular crunch in volatility around turning points in the bond market. So, are we about to see a disorderly selloff in Treasuries?

It's a big call to make, and many have lost their shirts predicting a repeat of the 1994 bond market crash. I'm not a fan of making wild predictions, but what I can say - when I look at the data, and see still very low real yields by historical standards, and very high duration by historical standards... I see a situation of low expected returns and higher risk.

Not a winning combination...

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.