What’s Up with Bonds-Long and Junk Bonds?

July 1, 2024

Mish's Daily

By Mish Schneider


Statistically, one of the most bullish days of the year, July 1st was rather surprising.

The Family- (please check the weekend Daily), was not so happy today.

Crypto and his crew were a bit stronger.

However, the yields were the biggest surprise.

The 10-year bonds rose by 3.24%. The long bonds rose by 3% and the junk bonds fell a bit more than ½%

Why?

Is it the strong economy?

ISM came in softer today.

Earnings expectations are dropping.

The Fed remains convinced inflation will return to 2%.

The best thing we can say about the high long bond yields is that the SPY is outperforming TLT. Risk on.

The worst thing we can say is that the pressure on the already pressured areas of the market continues.

And amazingly, commodities remained robust.

Gold, silver, oil, coal, copper wheat, soybeans, even uranium all did well.

Looking at the chart, TLT broke down below the 50-DMA on both price and momentum.

Plus, this is the weakest TLT has been against the SPY for a very long time.

Looking at Junk Bonds (HYG):

HYG broke below the 50-DMA.

HYG is a great measure of risk on or off. Today is saying off.

Bonds traders buy high yield debt bonds when they believe that companies with poor balance sheets will do ok and therefore pay higher yields.

Today, not so much.

HYG sank in momentum and underperforms the benchmark.

76.50 has been huge support.

Therefore, should HYG falter more, are we bothered, or do we like that both HYG and TLT are underperforming the super strong SPY?

I’ll go first.

Something will break if this trend continues-and it does not seem like the FED will help.

 

Educational purposes only, not official trading advice.

For more detailed trading information about our blended models, tools, and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.
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ETF Summary

S&P 500 (SPY) 5400 support

Russell 2000 (IWM) 197-202 tightest range to watch

Dow (DIA) 40k resistance

Nasdaq (QQQ) 474 support

Regional banks (KRE) Watching the range 45-50 CAREFULLY

Semiconductors (SMH) 260 pivotal

Transportation (IYT) 67 hurdle to clear 64 support to hold

Biotechnology (IBB) 140 pivotal resistance

Retail (XRT) 200 week moving average support at 72.75.

iShares iBoxx Hi Yd Cor Bond ETF (HYG) 76.50 key support

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