Are Bonds Stabilizing?

Financial graphs on the computer screen

This post is for education purposes only and should not be interpreted as a trade recommendation.

Despite all the buzz about a hawkish Fed, interest rates are starting to fall.

Yields on the three major Treasuries have eased lower after hitting some key long-term levels:

  • Five-year notes ($FVX.X on TradeStation) led the increase in interest rates since September, shooting up from about 1.7 percent to 2.7 percent. They hit their highest level in eight years on March 21, the same day the Federal Reserve raised interest rates. But the yield slammed lower the next session and has remained calm since. That resulted in not only a doji candlestick pattern, but also a potential “island reversal.”
  • The 10-year note yield ($TNX.X on TradeStation) also leapt on March 21, but remained below its earlier peak from February 21. It’s back near an old high from late 2013.
  • 30-year bond yields ($TYX.X) have also eased downward in the last month since hitting their highest level in 2-1/2 years.

Price action in the futures tracking all three of those bonds has also shown signs of a turn. The chart below has a custom indicator that analyzes recent price action to show whether traders are buying or selling. It has grown progressively less bearish in recent weeks — especially as the futures contracts attempt to hold support at some potentially key levels.

By the way, remember that we can only trade bond futures and not the yields directly. And, of course, don’t forget that futures move in the opposite direction as yield because they track prices.

Bond charts
Yellow rectangles show improving buy/sell price action in bond futures.

Five-year Treasury futures (@FV) and 10-year Treasury futures (@TY) are both grinding higher from peaks in April of 2013. The 30-year contract (@US) is bouncing at an area from December 2016 and March 2017. In all three charts, the Buyers Vs Sellers indicator has been rising. Email me at if you’d like a copy of the workspace.

Interestingly, stock prices may have anticipated this trend because Utilities (XLU) and Real-Estate Investment Trusts (XLRE) are the only two sectors in the S&P 500 to rise in the last month. Both of them are usually valued for their dividends, so tend to benefit from lower rates. Were they canaries in the coal mine?

Bottom line: Markets are forward-looking. They anticipated the run-up in rates several months ago but now that may be changing.

This post is for education purposes only and should not be interpreted as a trade recommendation.

Advertisement #1 Trading Platform Technology - 8  years running!

Previous articleDon’s Notebook March 27, 2018
Next articleA Look Behind Facebook’s Surging Options Volume
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.