RJO FuturesCast

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Interest Rates

No Flight to Quality for Bonds

Posted 02/09/2018 3:20PM CT | Tarik Husseini

While the action is in the stock market this week, with daily ranges that we haven’t seen in years, the treasury bonds have been remarkably quiet.  It used to be that if the stock market sold off, flight to quality buying would flow into treasuries.  Not this week, which bodes continued bearishness for bonds. 

As noted in the last several articles I have written the spectra of higher inflation, and a Fed turned hawkish is keeping pressure on bonds.  In the last employment report on February 2nd the unemployment rate stayed at 4.1% which is at its lowest since 2000, and wages were up 2.9% compared to last year, which is the fastest pace since 2009. The tight jobs market is finally starting to drive wages higher.  And wages are a leading component of inflation, so certainly something to keep an eye on.

Going forward, bonds are on a bearish trajectory. Currently, the March 30-yr futures is just above 14400. The 147-148 handle looks to be strong resistance in the near term. One should consider selling rallies as the fundamentals look to remain bearish. The Fed is all but certain to raise rates at the next FOMC meeting, and possibly three more times before the end of the year.

30-Yr T-Bond Daily Chart

bond_daily_chart

Tarik Husseini