The US 10-year yield has pulled back from 3.50% to 2.75%, which is a sizeable drop by any stretch of imagination. The Fed has clearly said its current focus is on price stability and with yesterday's employment numbers, there is still little reason to believe that fears of a so-called slowdown, or even worse - a recession, are showing up in high frequency data that the central bank is using, atleast for now (or they have the data, but because of political pressures, continue to focus on containing inflation).
The vertical drop in commodities has been puzzling no doubt; in fact the descent has been so quick that most people are aligning towards the fact that Fed forward guidance of more hikes (it remains to be seen whether existing measures of tightening policy are having the desired effect) are showing signs of demand destruction. I think for the Fed to acknowledge that a recession is a bigger worry than growth (at a certain point of time in the future), they would like to see a consistently southward CPI print which shows credible signs of not being sticky on the downside. For now, I believe they are simply taking back all that they made available in terms of additional QE to pull the world economy out of the Covid led crash.
Tactically, the visit to 2.75% was fleeting -- that was a key support level, so the market comfortably vaulted past 3% on employment gains that were more than expected. These moves have now resulted in the market dangling at a critical juncture which I will try to address via the three best Elliott wave counts I have conjured up (the right to be wrong is exclusively mine, and so is the right to adapt quickly to what the market might be doing regardless of what I think it should do) given the presently available evidence. All three counts start from the July 2021 lows -- the count from the 2020 crash lows of 0.34% has not been used for the sake of this analysis (which suggests the bull market in yields has much longer and higher to go) but that's a separate discussion altogether.
Primary Count: Long term trend in yields higher and is very much intact, but more sideways churn is expected within a RUNNING TRIANGLE before a surge: Requirement: 2.75% must hold for this to be valid labelling
Alternate count #1: Long term higher, but one dip below 2.75% is needed to meet the minimum requirements for w((4)) to end Requirement: One more dip before a larger degree 5th wave targets 3.50% and higher; 2.75% can be broken or at the least, retested
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Alternate count # 2: More aggressive count that suggests higher immediately, longer-term higher yields play Requirement: 2.75% cannot be broken from here, not even by a tick as per the rules of the wave principle for an impulse
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Conclusion: Regardless of which wave count is in play - we will know that as we have more information appearing from the right of the chart, the impulse up in yields is anything but done. Perhaps, inflation will remain sticky longer than the consensus view is.
could you do an analysis on US2Y? i find it much more difficult to predict. It moved so fast on the way up, if 2.5 is broken no resistance is available until 1.47, then 0.4. If the 2 year breakdown, it will collapse as dramatic as its way up
louistran_016
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really like the argument, but the thesis skews too bullish for yield, and too bearish for bonds and equities. The push from 2.7% to 3.49% looks like the last wave of a wyckoff distribution and didn't see much follow through, invalidates "Tactically, the visit to 2.75% was fleeting" if 2.7% is broken, we will crash to 2% psychological level and 1.74% actual demand zone pretty quickly 4.2% target in both scenarios here will destroy the US ability to service its debt and create breakdown in society structure. Inflation will be much favored over civil war and national bankruptcy any day
CMT_Association
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@louistran_016 Thank you for your observations. Your arguments make sense but the market character is such that we have to take it one step at a time. I will look at the US2yr though and see if there is better evidence there. Keep the thoughts flowing though -- sure helps further the learning process.
heavy_assault
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looks like yields are going to back 0. everyday yields plummet.
CMT_Association
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@heavy_assault They rallied from around 0.3 to 3.5% non-stop. No market can go linear without a bump so that's what's happening here.
heavy_assault
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@CMT_Association, i guarantee 10 year will be sub 2% by middle of august, then sub 1.5% by september's end.
looks like bond investors are happy watching inflation destroy their money.
this world is forever doomed to 0% rates and exorbitant p/e on growth stocks, and the housing market bubble will forever inflate. it's fking hopeless.
Sangam-Agarwal
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great work 👏
Tinman17
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Love this analysis, bravo.
CMT_Association
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@Tinman17 Tysm for your kind comments. Best wishes