In a prior G&S Perspective (VIX: The Fear Index) we discussed the possibility of volatility increasing in the equity markets measured by the CBOE Volatility Index (symbol: VIX). Volatility has also been entering the bond market as investors grapple with the possibility of rising inflation, which is an especially valid risk in the current low interest rate environment. The Federal Reserve intends to keep rates low to aid the economic recovery as Chairman Powell stated in his virtual Jackson Hole speech (August 28th) that he is willing to let inflation run moderately above the 2% goal for some time before adjusting the current interest rate policy.

US Treasury 30YR Yield Index (TYX)
As of 9/9/2020 – 14.58 │Up 0.35 (2.46%) │YTD (-38.970%)
Default Chart Low: $8.50 (3/9/20) │Default Chart High: $81.50 (11/17/94)

G&S Perspective: Bond values were getting more volatile in mid-August as traders struggled to identify the state of the domestic and global economic recovery. A stronger and quicker recovery enhanced by liquidity from central banks could spike inflation concerns. 10-year yields (symbol: TNX) are back above 0.7% and the 30-year (symbol: TYX) yield is above 1.4%. One could argue the negative trend in yields has bottomed and a counter trend rally higher is underway. Both are well off the March lows when 10-year yields were at 0.39% and the 30-year yield was 0.85%. This trend reversal could be short lived as the recent rise in yields has been met by a new wave of Treasury buying. TYX has resistance just above 1.5% as well as the bearish trend line. Time will tell if this is another short lived pop or if this rally has more upside.

“The market can move for irrational reasons, and you have to be prepared for that.”

― Bill Gross,
American Investor

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