The FOMC last week gave the markets what they expected, a 0.25% increase in rates. The much larger than expected increase in new jobs for January had the experts and Fed officials debating about the future path of yields.
On November 1st, 2022 there were clear technical signs that the yield on the 10-Year T- Note was in the process of topping out. By November 3rd the Yield had formed a second peak with a high of 4.223%. This set the stage for a quick decline to a low of 3.402% in early December.
10 Year T-Note Yield
Tom Aspray – ViperReport.com
The high in yields was identified in part by the MACDs and MACD-His forming a negative divergence as yields were peaking at 4.333% on October 21st. This divergence between momentum and yields identified the downtrend (line a) that is now being tested. After a late December bounce to a high of 3.905%, the yield then dropped to a low last week of 3.334%. The yield has rebounded this week to a high of 3.692%. There is support at 3.552% and the rising 20-day EMA.
The MACDS started to bottom in December as the MACD and Signal lines formed higher lows, line d. That is also true for the MACD-His. Both have turned positive in the past few days and they now have to surpass the recent highs to confirm that yields are moving higher,
2-Year T-Note Yield
Tom Aspray – ViperReport.com
The 2-Year T-Note yield has had a much smaller range since yields peaked at 4.790% on November 3rd as they had a low last week of 4.040%. The yields have convincingly broken the downtrend, line a, but have not yet overcome the early January high at 4.519%. The starc+ band has been exceeded which does favor a pullback in yields or some sideways action. There is support at 4.273% and the now rising 20-day EMA.
The MACDs formed similar negative divergences, lower highs line c, as yields formed higher highs. By early November the MACDs did not even turn positive as yields were making their highs. The positive divergences in the MACDs have been less pronounced on the 2-Year T-Note yield, line d. Both MACDs are now positive as the downtrend, line a has been broken.
In my past discussion on yield, I have included the analysis of the Vanguard Total Bond Fund (BNDBND
) which is the largest bond ETF with assets of $315 billion. BND started to decline in October 2021 as the MACDs both turned negative when it was trading near $85.
By the end of 2021, BND was unable to close above the 20-week EMA which had started to decline. It was down 13.11% in 2022. In August 2022 I warned that the rebound in BND was likely ending (see August 19th chart) and it eventually declined another 5.5% before it bottomed.
Vanguard Total Bond Market (BND)
Tom Aspray – ViperReport.com
Last fall I was a few weeks early in looking for a bottom as BND eventually dropped to a low of $69.09 before it started to rebound. It had a high last week of $74.86 before gapping lower and that may be the high point for the rebound. BND has gained 8.3% from the October low.
The daily chart shows what appears to be a continuation pattern, lines b and c, or just a pause in the downtrend. A close below the support at $72.79, line c, will indicate that the rebound is over. The on-balance-volume (OBV) peaked in December and has formed a series of lower highs, line d. This bearish divergence is consistent with a failing rally. On a decline below $71.86 a test of the lows is likely.
Does this mean that stocks will have to drop if yields do move higher? Not necessarily as I have always analyzed the markets separately. The relationship between the trend in yields and that in stocks has not always been as clear as it was in 2022. Currently, the advance/decline analysis, after bottoming at the end of 2022, is still positive.
