Michele Schneider | Jun 04, 2024 12:26AM ET
After a huge down move that began in December 2021, the long bonds or TLT have had a few shallow short-covering rallies,
but not much more than that.
The “higher-for-longer” for interest rates narrative, coupled with higher inflation and the strong labor market are 3 big reasons the FED is on hold.
Nonetheless, this week the long bond rally has our attention.
Some reasons for this bond rally:
As rates go down, the value of long bonds rallies or increases.
With many of the more recent statistics pointing towards an economic contraction or perhaps worse- oncoming stagflation or even worse - a looming recession, we must look at the TLT and understand the reasons yields could be falling right now.
The weekly chart moves out the timeframe a bit.
TLT has not had 2 consecutive weekly closes above the 50-Week Moving Average since December 2021. HUGE-should that happen anytime soon.
The Real motion of momentum indicator has not cleared the upper Bollinger Band in a really long time. HUGE-should that happen anytime soon.
TLT has underperformed the benchmark since March 2023, when long bonds briefly ran up during the mini bank crisis.
Zooming into the Daily chart, momentum is improving but still not through the horizontal black zero line.
TLT is now outperforming the benchmark, though we prefer to watch that on a weekly timeframe.
The price shows a move closer to the 200-DMA.
If you put that all together TLT will change the landscape if this rally is real.
Besides the investment opportunity in bonds, it could spell trouble for the economy and the market as the FED might choose to ignore inflation and instead, help the economy-which
Could also mean they fail at both.
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