Heading into the year, the outlook for Treasury Bonds seemed obvious to us. However, given persistent deflationary pressures and the possibility of a rally in the US$, it was wise to keep an open mind. And it still is. The fact is we are starting to see a divergence between Treasuries and the US$. In our Market Outlook, we showed how Treasuries have been leading the US$ since 2007.
This chart of the 10-Year Yield shows an imminent breakout. Everything is bullish here. It is a beautiful reverse head and shoulders pattern and the price action is bullish in all time frames. Take a look at the 30-Year Yield ($TYX) and you’ll see that is even closer to a breakout.
In terms of sentiment, the Market Vane survey has 52% as bullish on Bonds. A reading of 40% (based on the history of the survey) would be considered somewhat extreme. The other thing we should note is that in the last few years the majority of new money has plowed into fixed income. The money isn’t in Gold, stocks or Commodities. It is in fixed income. A sustained higher move in Treasury yields is likely to create some broad volatility as there could be a major reshuffling in the typical baby-boomer portfolio allocation.