Market Insights / Commentary

Power-charting the selloff in bonds

By Michael Burke

There’s a growing consensus interest rates may be headed higher, which means bond prices may be headed lower.

The idea went mainstream a month ago when headlines swept the globe: “Japan to end quantitative easing!” “Fixed-income guru Bill Gross calls the end of a multidecade bull market!” “Europeans rethink easy money!”

Yesterday, the story was back in the news in a big way after January’s inflation report shot past expectations. It triggered another selloff for bonds, and sent 30-year Treasury futures (@US) to their lowest price since last March.

I’ve been watching the move with a custom candlestick indicator on TradeStation. It analyzes recent highs, lows and closing prices to suss out whether traders are buying or selling. Activity’s grown increasingly bearish since 2018 began:

30-year bond futures, weekly chart

This special analysis tool tends to flag multi-month flows of money into or out of a security. The clearest signals occur when the histogram at the bottom flips between red and green. Once it starts in a new direction, momentum has generally continued for at least a quarter.

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