Bond Market Low Looks to Be In, Rally Set to Continue

Bond Market Highlights:

• Bond market looks to have capitulated and on the rebound for the foreseeable future
• Channel structure in place on the Ultra 30-yr acts as a guide

A week ago today I looked at the bond market and wrote that it looked like a bottom may be near based on the capitulation we were seeing. Selling over the week prior was one of the heaviest week-long stretches we had seen since the bond market topped during the nearly days of the pandemic.

On Monday, bonds hit a low and have bounced hard thus far. After going “off the rails” with the channel structure clearly seen on the 4-hr chart, the 30-yr Ultra bond is well inside and on its way to the other parallel.

This may very well act as a stiff level of resistance upon the first testing of this line, but in time it is anticipated it will break. A pullback could offer up an opportunity for would-be dip-buyers to enter long, with a break out of the channel as confirmation that indeed a low was forged this week.

More conservative traders may even look for the structure to get broken, then look to a retracement following. In any event, so far so good for the bond market as we head towards the final stretch of the year.

Even if you don’t trade bonds, a bullish outlook is likely to be a boon for stocks and headwind for the dollar. This dynamic may loosen a bit as time goes on, but for now the three are very much connected as correlations remain strong. This is something to keep in mind while navigating other markets.

30-yr Ultra Bonds (UB1!) 4-hr Chart

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX