A bullish scenario for HYGThe iShares iBoxx $ High Yield Corporate Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds.
Bonds
Why Corporate Bonds are not a good option for Retail InvestorsCorporate bonds or tradeable debt instruments issued by corporations are a type of fixed income security. Given the recent media attention and the rising demand for fixed income investments among retail investors, it may come as a surprise that they are not suitable for all investors. Corporate bonds have different risks associated with them than other fixed income investments like savings accounts, money market funds, and even municipal bonds. If you are considering investing in corporate bonds or are already holding some in your portfolio, here is why you should avoid them as a retail investor
What is a Corporate Bond?
A corporate bond is a debt instrument issued by a corporation to raise money. Corporate bonds typically have a set maturity date after which the outstanding principal will be repaid. There are many kinds of corporate bonds, including investment grade and high yield, government and non-government, and they can be issued in local or foreign currencies. Corporate bonds are often traded on the secondary market, which means they are liquid and can be bought and sold easily. Investors earn a return on corporate bonds by receiving interest payments and by the increase in the bond’s value as it matures. The interest rate on a corporate bond is based on factors like the company’s credit rating, the length of time the bond is outstanding, and the bond yield in the market at that time. Corporate bonds are typically less liquid than stocks, and may have shorter holding periods, especially if you purchase them on the secondary market.
Risks of investing in Corporate Bonds
Corporate bonds are considered a form of debt financing, and as such, there are risks associated with holding them. The main ones are default, liquidity, and interest rate risk. - Default risk - Investing in corporate bonds entails the risk that the issuing company will default on the payment of interest or the repayment of principal. However, since corporate bonds are issued by companies in different industries, there is a low probability that they will all default at the same time. - Liquidity risk - The risk that you will not be able to sell the investment in a timely fashion at a price that is attractive to you. - Interest rate risk - The risk that if you hold the investment until maturity, you will earn a lower rate of return because interest rates will have risen in the meantime.
Why you should avoid Corporate Bonds as a Retail Investor
While corporate bonds may be suitable for institutional investors, they are not a good option for the average retail investor. For one, you will have to educate yourself on the various types of corporate bonds, their risks and returns, and what kind of companies you should be investing in. Even if you are successful at taking this on, you are likely to end up with a very concentrated portfolio, which brings us to the next problem. The other issue is that retail investors typically hold a small number of bonds and these bonds are often concentrated in a few issuers. This is not a good strategy because if a company defaults, you could lose a large portion of your capital. This is clearly a bad strategy.
So, How about Investment grade debt ETFs?
LQD, In a rising interest-rate scenario. The bonds' tenure is clearly working against them, especially since unemployment continues to fall at an astonishing rate. This is not the time to invest in this ETF if the Fed raises interest rates to combat inflation.
In order to completely comprehend this analysis we must know how important the duration is, while investing in bonds.
Duration is an important topic. It is the bond's effective maturity, which means it is oriented to something lesser than the time of the bond's final payment since part of the bond's value, generally from coupons, happens earlier in the bond's existence. If a bond has a longer effective maturity at a fixed interest rate, it indicates that investors are tied to an interest rate that was once market for a longer period of time, and if rates increase as they are currently, you will be bound to an uneconomical rate for a longer period of time. Simply put, longer term bonds lose value more severely when interest rates increase.
How maturity of a these bonds (Duration) is affecting LQD
Unemployment has gone down despite the increased rates, which has surprised many analysts. The Phillips Curve is back in force, where low unemployment yields high inflation if inflation is kept down, and contrary to common perception, Consumer spending has declined, but unemployment is so low that it might rise again unless the Federal Reserve, which is committed to lowering inflation, continues its anti-inflation campaign. The Federal Reserve has raised rates as well as given gloomy recession predictions, and more banks are following its lead, including the Bank of England. LQD, which has dropped 14% this year, have long-duration bonds, majority of fixed-rate, which is concering for this ETF.
Credit Spread
Global Cooperate Bonds in general
Corporate bonds continuing their strong performance in July, producing $80 million (+76% year on year). July was the most profitable month of the year for CBs . Their revenues in 2022 have exceeded from 2021 ($512 million). Average balances increased by 9.8% year on year, average costs increased by 59% year on year, and usage have increased by 27% year on year. Spreads on non-investment grade and high yield bonds continue to widen as corporate prospects deteriorate owing to weakening consumer demand and stricter financial conditions. In-turns , asset values fall, yields rises, and borrower demand increases. However, CG Debt funds have seen the highest monthly outflows in May and June (-$73.7 billion)
In July, High Yield Bonds enjoyed the relieve rally.
Interest rates vs Corporate Bonds comparison
Alternatives to Corporate Bonds for retail investors
For retail investors, the most advisable option is to go with government bonds. Government bonds have historically offered a lower risk profile compared to corporate bonds. The best way to go about investing in government bonds is to go for a diversified bond fund. Using a bond fund reduces the risk associated with investing in bonds further as the fund manager may hold a large number of different bonds. If you are looking at a short-term investment horizon (less than 10 years), then you could also opt for short-term government bonds. If you have a long-term horizon, then you could consider a long-term government bond fund. Savings accounts, money market funds, and short-term government bonds are very liquid forms of low risk investment options.
Conclusion
It is important to understand that the corporate bond market is not risk-free. When interest rates are rising, corporate bonds are generally falling in price as they are competing against government bonds with lower interest rates. In times of economic uncertainty or when interest rates are rising, the risk of default is generally higher for companies issuing corporate bonds. Thus, it is advisable to invest in corporate bonds only when the economy is growing steadily. For retail investors, the best options are to go with government bonds or short-term government bonds. These are low risk, liquid investments and will help you achieve your financial goals.
Bonds Break SupportBonds have edged lower, breaking through support at 119'23. We have fallen to suport at 119'01, currently hugging this level, but finding good support confirmed by two green triangles on the KRI. The Kovach OBV has slipped a little, confirming the selloff, but has since appeared to level off. If we are able to pivot here, then 119'23 and 120'14 are the next targets to the upside. Watch for the vacuum zone below to 118'04.
Expectations for September's FOMCWhat do the markets care about this week? We have another CPI print on Wednesday, which is highly anticipated. We are in a period of nasty stagflation and the Fed is caught in a difficult position. They want to raise rates further, but the issue is that our cause of inflation seems to be on the supply chain side. Interest rates will do little to combat this. The NFP numbers Friday were pretty strong, so their case is strengthened to raise by at least 50bps in September, at the next FOMC. It will be almost a certainty if CPI comes in hot.
Note that GDP came in contractionary for two quarters in a row, which is the definition most use for a recession. This stands somewhat at odds with the strong NFP numbers, which could be a seasonal fluke. If the data continues to indicate that we are in a recession, the Fed will eventually be forced to lower rates again. The markets seem to be weighing this reality before rallying with conviction.
IF the 30 year bond stays above the trend line, stocks lose.The three decade + trend for bond rates has been downward. In June, we witnessed the first rise above that trend line in recent history, followed by a return to the trendline last week. This is a pivotal point for both bonds and stocks. If stocks drop back down below the trendline, we can see the market go higher in the near term. If the 30 year bond rates rise this, we can expect a downturn in the stock market.
Prediction: Bonds will trade sideways before going up. Stocks, already with substantial momentum, will continue higher, until bonds resume an upward momentum, confirming that the stock bullmarket is over. This may last up until the Fed raises rates in September.
Employment Data Hammers BondsBonds crept up but are facing resistance. After ZN tested highs at 121'28, and retraced, it started to establish value between 119'23 and 121'00. The latter has provided prohibitive resistance, as we have discussed this week, and we have seen a rejection, continuing the sideways correction. We saw a wick down to 119'23, where we found support, at first, but we subsequently broke through to the vacuum zone below. This follows Non Farm Payrolls coming in at a surprise beat, with unemployment at 3.5%. Expect support at 119'01.
US02Y/US10Y bonds signals end to market rally. Bear FlattenerUS02Y up ~6%
US10Y up ~0.12%
Definition of a Bear Flattener = market go down.
Is it a perfect indicator? Of course not. But the tendency is that bear flatteners mean money is coming out of the market and going into short term bonds where it can come out of the quickest if market turns around. So the short term bonds act as a kind of pump/dump for the market. We are getting bear flattener headwinds ahead of CPI print next week.
Next week maybe market flattens out, momentum dies, slow stochastic falls below 80, and price sets up to go below prior "higher lows".
Keep on alert.
Pre-recession PumpAccording to this chart, true recession will come next year, not this year. Before the big dump is a big pump.
Update on long duration bondsHello everybody! I wanted to make a quick update on where I think the 10y and 30y bonds will be headed in the next few months, as in the past, I've been talking quite a bit about deflation and a recession being close. We have seen TLT rise significantly, yet I think there is more upside. In the short term, I can see a further pullback, but in my honest opinion, the drop over the last two days was caused mainly by Pelosi visiting Taiwan and bonds getting overbought on lower timeframes.
The 30y yields were rejected at the monthly pivot, while the 10y yields bounced at support and were denied at resistance. Yields are still in a short-term bearish trend, and there is no confirmation of a reversal yet, although the trend might have changed. It all depends on the situation between China and the US, as the more the tensions between those countries increase, the higher inflation will be, and therefore the higher rates will be. If China starts aggressively selling US bonds, this could create chaos in the funding markets. If the US starts banning Chinese imports or exports, the US bond market could explode, and yields go to the moon. This would force the Fed to step in and do unlimited QE / yield curve control. Essentially we are stuck in a scenario of mutually assured destruction here, and there is no way either one will come out as a winner in the short term.
I believe that we are in a deflationary/disinflationary period, which could be disturbed at any moment if China invades Taiwan. The Russia/Ukraine war pushed inflation higher at a time when inflation was about to start slowing down, and a China/Taiwan war could push inflation higher at a time when inflation was about to slow down. TLT could quickly reach 125-135 in the next few months. However, I don't believe bond yields are going negative soon. It will be challenging for the market to have negative nominal yields when inflation is so high and at a time when the Fed might be forced to intervene and do YCC.
TLT First Profit Target Achieved, What Next?In this update we review the recent price action in the TLT ETF and update the trade strategy and price objectives to target
BOND/USDT , Pump probabilityHi everyone
Here we have plotted the support and resistance levels of the BONDUSDT.
It seems that with the breaking of the upcoming resistance, we will see an increase in the price to the range of 11 dollars.
But we all know that everything depends on the behavior of Bitcoin!!
If you see specific behavior, we will signal it, stay with us.
Big Head and Shoulder Pattern 10 yearHey all just showing the ten year is looking like it will fall in anticipation of the fed relaxing its polices as we are in recessions and the labor market might weaken with the layoff announced by the big boys (tesla, Apple, google etc.) the distance of the head to neck bring the target to 2% which is less then current interest rates so I don't know if it will go that far with out something breaking in the economy first to cause this sudden shift in fed policy. Although Bull will put this in there case of the bottom is in history does not favor that philosophy. If you actually do research at the old peaks in the 10yr yield you will see markets usually collapse with the yield. Examples are 1999-2000 as the tech crash started, 2007-2008 as the GFC started and even in 2018 yields started to fall and the market bottomed after another +10% fall so watch out dont get FOMO in current rallies.
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A traders’ playbook – technically long, tactically cautious We roll into August where after a scorching run in risk assets, the NAS100 closed July +12.6%, the best gain since April 2020 (rallied 15.2%). In Europe, the FRA40 was the best performing EU equity index, +8.9% for July, while in APAC/Asia the AUS200 rallied 5.7% and trending beautifully into FY earnings.
Ethereum gaining a massive 67% in July has shown us once again that if risk is going up then crypto is the high beta play and we watch this space for a new leg higher in this move. FX markets were less clear, with the NOK working well as a pure pro-risk FX play, while the once safe-haven JPY has also shone as US bond yields fell, validating the BoJ’s dovish stance – clients have been heavy buyers of JPY of late and continue to hold a positive JPY stance.
We start the week pricing on a slight negative vibe, with China releasing a poor manufacturing PMI print, with the index at 49.0 and pulling into contraction territory – geopolitics was looking like making somewhat of a return with US/China relations in focus as talk of a possible Nancy Pelosi visit to Taiwan did the rounds, but that looks to not the case now.
As we look ahead, we consider what themes and event risks will drive markets this week. With the Fed moving to a more data-dependent/balanced structure last week felt as though we saw a temporary ‘goldilocks’ scenario – if the data proved to be poor then rates hikes are priced out, bond yields fall and the USD found sellers – subsequently, we buy growth equity, crypto, gold and the JPY. If the data proves to be better, then we speculate the recession trade may have gone too far. One thing is clear, bad news has been bad news for the USD and certainly versus the JPY, with USDJPY -2.1% on the week – falling through the 50-day MA, which has worked as a primary trend filter since March.
From a momentum perspective, my indicators are bullish and there are few reasons to be short – the NAS100 has some big levels to break into 13k – an upside break here could suggest adding to longs. The USDX tests the lower levels of the regression channel (drawn from the Jan lows), while EURUSD consolidates in a 1.0100 to 1.0270 range. XAUUSD looks interesting for $1786 but requires a weaker USD and lower real rates and SpotCrude needs to break out of a $95 to $103.70 range.
The battle lines are drawn, but tactically I would be looking more favourably at short-risk trades – as always, when the tactical/fundamental view and technicals disagree on the longer-timeframes I'll back Mr Market, especially if using leverage. However, I see a refresh this week in the markets thinking and good economic should see the market price a greater chance of another 75bp hike from the Fed in the September meeting and now US Q2 earnings are drawing to a close, and financial conditions are more accommodative than they were before the Fed hiked the fed funds rate by 75bp last week - one suspects the Fed will not want to take the foot the inflation break just yet. Feels like the skew of risk is for the Fed to gently tighten financial conditions and discourage greater risk-taking from hedge funds.
We can also see the bank reserves held at the Fed increased by $40.4b last week – this looks at the liability side of the balance sheet and has correlated well with growth and high beta equity and gives a good guide to liquidity. If this was to turn lower, and we won’t know until Thursday, then it will hold well with a weaker equity tape.
Looking at the calendar we have the RBA and BoE meeting – we can see GBPUSD 1-week implied vols are still quite elevated and could easily see some moves play out in the quid. I think they go 25bp myself, which offers moderate GBP risk, but the job of the trader is to run the distribution of potential outcomes and assess the sort of moves that could play out. In the US, the ISM manufacturing report, payrolls, and Fed speakers will garner my close attention.
After a huge July, we turn to the Northern Hemisphere summer holiday trading conditions – it doesn’t feel like traders should be shutting up shop and taking a break given the unfolding dynamics, even if it can be the best thing for the mind.
Bonds Break OutBonds have lifted, breaking out of the narrow range held for the past three days. We broke the upper bound at 120'14, and hit our next target exactly at 121'00, as predicted. We are seeing red triangles on the KRI suggesting that we are facing resistance here. The Kovach OBV has picked up, suggesting genuine momentum may be back. If so, the next target is 121'28. If we retrace, we should have strong support from 120'14 and 119'23.
10yr - keep an eye!10yr keep an eye
Got a H&S formation, keep an eye if we break down further there are key support areas IF this continues further. However, we are at key support and don't forget month end.
Have a great weekend 🎉
TJ
Monster Bear Flattener AheadHistorically - inflation has never been defeated except when a long term bond (in this case the 30 year) yield is above the rate of inflation. The collapse of supply has meant too much money chasing too few goods. This means more and more capital is sucked into a blackhole of wage-price spirals. Currently the US has trapped itself against a wall and a hard place in that the 30 year treasury yield is well below the inflation rate. A situation which hasn't happened to the US in 100+ years (I can't speak for the Civil War Era, I haven't found data back that far). You can see the 30 year yield history by searching Google for "Fred 30 year yield" (Can't post links yet).
The only logical path to achieve this is a bear steepening when people realize that inflation cannot come down otherwise and then begin a sell-off.
Yield curves will stay inverted since the FED has put a floor on interest rates which the treasuries are already starting to get close to.
"Restrictive rates" = = a bear flattening environment. We are currently in a "bull steepener" attempt which will fail.
SPY SPX S&P 500I believe the next 6-12 months will put the s&p potentially higher than my previous target, depending on whether or not this is in fact the start of a wave 1 of 3, part of the 5th wave of a higher degree (purple) wave 3.
If current turquoise wave 3 is extended, then wave 5 will more than likely perform a "throw over" in relation to the 45 degree channel in this chart
However, failure to break the previous X wave, will result in one Final down before a purple wave 5, invalidating the current impulsive count. (potential WXYXZ is still visible on chart)
As of right now, I can say with confidence that the 200 MA will cross the 3200 ma on this 1 hour time frame, by the time it reaches the 3200, the price will be ~4400$ +
for a longer-term and complete Wave Count of S&P500, An Older post is tagged below
5 year yields probably topping out5 year bond yields in the US look like they might be topping out.
Incurs a negative bias on the wider economy.
Return to the historical trend around the yellow line?
NDX is painting the biggest Head and shoulders in Nasdaq History This pattern getting painted filled with false hope of people thinking the damages from QE since 2008 and the Pandemic printing are over is very alarming if it plays out.
It was terrible enough seeing people lose fortunes / life savings during the recent collapse of the simpleton's running VC funds with insane leverage without telling people where their funds was, I caught onto this with Luna and a some lending platforms but not many people listened due to euphoria of price only go up.
Now the global economy is about to retract due to governments not supporting supply side of the business cycle and only creating demand via printing causing inflation and more poverty (due to businesses failing to meet profits causing less staff and a deflationary death spiral), this is magnitudes larger than what happen in the crypto space and what happen in 2008 combined with 2000. If this market starts to turn bearish and margins are not met, money that does not exist starts to get claimed, defaults start to happen, panic starts to happen.
Now is a great time to re evaluate where your funds are, are they safe from bail in inflation? are they protected from bail outs?
The federal reserve has one plan and one plan only.
• Raise reward rate for reverse REPO (Build a functioning bail out dam that can be literally controlled released)
• Raise Interest rate's collapse the bubble in all major markets (hoping to contain the current inflation outbreak)
• Panic mode but here's where the FED will step in and start to reduce the reward rate to ZERO
• Money starts to flow back into normal markets as any money still in the RRP will be earning nothing
• Majority will flow into US 20 year bonds causing the yield to collapse, funding the government, THIS is what JAPAN is counting on happening as they're directly involved, they hope to be able to make up for their unlimited bond purchases by selling US Government bonds at a premium
• Some money will start to flow into all equity markets from Government funding new infrastructure, and money going directly into markets from the RRP
• The will be all unfolding when the RRP award rate starts to fall do not focus on reserve rates
• All of this to reset the biggest bubble in history that will clearly put the world into a deflationary spiral to avoid needing to hyperinflate right now, everything I just explained is essentially to avoid hyper DEFLATION the big money from the QE / Stimulus is sitting in the RRP like the FED wants to be ultimately unleashed like the Three Gorges Dam during or after the collapse of the global economy
ALERT - - - - - - - IF this does not work to restimulate markets and there is still deflationary pressure the global reserve banks will be forced to start printing more money than you have ever thought possible think hundreds of trillions, the thought of hyperinflation will be accepted if the world is in a hyper deflationary death spiral this could genuinely end our human species due to quality of life dropping dramatically
Everything is happening now because of the absolute stupid decision idiotic insane unthinkable theory to start a program of unlimited QE and stopping the bust of the the natural boom and bust cycle filtering out all the bad actors, avoided the bust for what? everlasting inflation that the average person cannot outrun and start a family and population decrease is starting to happen. .
Good luck people -
US 10 year yield potential HnSIn the next 24-48h TNX may dump. That's bullish for other markets crypto, stocks...
JP10Y - Trend ReversalDouble bottom leading to a complete trend reversal
I am seeing this suggestions of trend reversals across the board on the bond market
GDP RealityThe Federal Reserve will suggest they projected a slowdown in Economic activity.
Effect Indicated, Effect Observed.
Solid work.
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Outside of the Matrix, the Depression slumbers on within the confines of Real Sentiment.
....The Deal Breaker.
"7" was misstated - "6" is the GDI hedonic, it's been a long overnight Session, apologies.
