Bond investors beware!

September 9, 20212 Comments

As the seasonally favorable period comes to an end in bonds, bond investors should be aware of the technical profile that could push prices down. This outlook may also impact interest sensitive stocks (positively or negatively).

To start, lets look at the Canadian long bond seasonal cycle, represented by the iShares XLB. Note the tendency for the bond market to lose its upside bias starting in September. Net-net, Canadian bonds tend to decline from September to November on a seasonal basis.

Here is the XLB chart. Note the current weakness at resistance. Note the weakening momentum studies.

 

Now lets look at the US long bond seasonal cycle, represented by TLT. Similar pattern to the CDN bond. That is, weakness into November from here.

 

Here is the TLT price chart. Pretty much the same story as the Canadian bond market. Failing momentum while rounding over at old resistance.

Conclusion

Bond investors might want to consider the neartermed downside potential if they are overly exposed to the long end of the curve. Further, investors holding sectors that are negatively affected by yields, such as utilities, may want to keep an eye on them. Utilities, by the way, have choppy seasonal patterns that are in line with bond market seasonality –  most of their seasonal weakness is seen in October and March.

On the other hand, sectors that are positively impacted by rising rates, such as the financials, are set to benefit by a weaker bond market. The financials tend to be strong from October to year-end, and they look set up to potentially be strong this year – particularly in the US. I’ll be talking about this in a bit more length during tomorrow’s webinar. Which brings us to….

Webinar tomorrow

If you subscribe to our emailed newsletter, you will have an invitation to the Zoom webinar for tomorrow (Friday Sept 10) at 10am EST. In addition to answering the posted questions, we will address new questions on the chat box as we can. Craig and I have also put together an opening presentation on our market view. In particular…Craig has put together a few notes on the inflation case that may be eye-opening to a few of you. Hope you can join us.

 

2 Comments

  • Hi Keith,
    This scenario sounds like a buying opportunity for utilities.
    Am I missing something?

    Reply
    • Ultimately, it will be a buying point if they pull back with bonds–likely best to buy that sector during its seasonal buy-point, which tends to be in the spring.

      Reply

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