Diary of a Financier

The end of secular disinflation

In Capital Markets on Tue 6 Aug 2013 at 17:38

I had to followup with an update on 10y Treasury yields ($TNX) after dropping this note earlier today:

$HYG & $SJNK H&S bottoms @ R shoulder supports, expect rally; $AGG & $MUB daily bear pennants could break-down soon. #Bonds
6 Aug 2013 @ 10:46

That expected decoupling among constituents of the fixed income hierarchy suggests that rates are poised to rise independent of credit risk. Said another way, low duration or high coupon issues are set up to fare well in what’s to come–at very least, relatively.

TNX did recede from the overbought levels of which I noted in my last entry on the subject. Now, quite simply, the 10y at 2.642 has confirmed its breakout from a daily falling wedge, whose resistance-cum-support held over these past few weeks. Longer term fractals not only show the 30-year-long trading range that was honored by 2012’s modern low, but they also show the bull divergence that portends an end to the secular bond bull:

TNX daily/weekly/monthly

TNX daily/weekly/monthly

At very least, cyclically rising rates are here, occurring in accordance with the technicals, exactly as I had envisioned back in March.

~~~~

Our benchmark is 60/40, but we’ve been underweight fixed income since the year began, in anticipation of this paradigm shift. Our current, 28.7% bond allocation is all low duration… and lowering.

–Romeo

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  1. […] Senior Bank Loans ($BKLN), and non-agency MBS.  No accident that our fixed income holdings are entirely low duration and have been for almost 2 years […]

  2. […] a quick update on the 10-year ($TNX) here.  We’re now one month since my last update on Treasury yields, when I focused on the secular end of disinflation.  What follows is a bit […]

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