April 28, 20222 Comments

I’m often asked about my outlook for bonds. So, I thought I would cover that subject today. We’ll look at both US and Canadian longer termed bond ETF’s. Specifically, I’ll look at TLT-US (iShares 20 year US Gov’t bond ETF) and XLB-TSX (iShares Cdn. LT Bond Index). Both are government bond ETF’s, although the Canadian ETF holds Provincial in addition to Federal bonds.

TLT (US long bonds)

I’m using monthly charts here to look at the very big picture for long bonds. As such, I adjusted many of the parameters I would use on a weekly chart to view the implications of longer termed movements. For example, note that the moving average on this chart is 30 months. That’s pretty much triple the 200 day SMA. I wanted to find the line that tended to support this chart’s trend over the major moves. I also used the 60-month Rate of Change indicator. This lookback period can be excellent for finding significant tops (not so much bottoms) on long termed charts. Please see my online Technical Analysis Course for more information on using that indicator.  Finally, I used MACD (another long termed momentum indicator) along with RSI.

On the chart below, note how TLT appears to be breaking its long termed trendline.  Its not just moved below the 30-month SMA in a similar manner to past corrections – its crushed it! ROC/RSI gave us a heads-up to a market high. MACD had reached an uber-highpoint, hooked down and has fallen below its histogram 0-line. This is a deep move, to be sure. The MACD move shows no sign of hooking up, meaning that the longer termed picture of momentum remains ugly. However, RSI is entering its oversold area. Although it has not hooked up, there is potential for a quick rebound for TLT as RSI breaches the 30-line. Note that bonds are normally favorable to own over the summer. So, given the signals I’ve been discussing regarding market risk of late (here and here), you may see a short reprieve in bond pricing as the market battles with a volatile stock market. We shall see.


XLB (Canadian long bonds)

XLB has not been around as long as TLT, so this monthly chart only goes back to 2007. I’ve applied the same moving average and momentum parameters for comparison. I didnt bother notating the trendline and momentum talking points. Basically, the charts illustrate similar patterns. I’m sure you can see this for yourself. So, the story is similar for Canadian bonds as for US bonds. That is, longer termed weakness, possible neartermed upside- albeit a relatively small move if that happens.



For kicks n’ giggles I’ve posted Equity Clocks seasonal chart for XLB below. Note the seasonal strength from April to August. So, its now or never, from a seasonal perspective, for that oversold bounce. If there is to be one.



So…what is my outlook for bonds? Well, in a nutshell…..”meh”.


Perhaps there is a bit of room for a neartermed positive swing in bonds. Its possible that the rate hikes are somewhat priced in to bonds. They say that long bonds are more affected by inflation than rate hikes, but to me, inflation and hikes work hand in hand anyhow. So – ValueTrend has no exposure to long bonds – not even in the ValueTrend Income Platform. We hold exposure to near termed bonds and higher-interest cash equivalents. Along with high dividend stocks and some select real estate exposure. In other words, we are not bullish on bonds. Take that for what it is.

Spring is coming – be sure to get out and enjoy the change in temperatures!


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