The seasonal time to own bonds is from May to October, according the Thackray’s guide. Typically, as stock markets weaken over the summer, money flows into the safer haven of the fixed income markets. The long bond on both sides of our border provides the most leverage to play any upside during that period of strength. Recently, both Canadian and US long bonds have sold off on fears of rising US interest rates and coinciding strength in employment figures. Here in Canada, our bonds seemed to tag along with the US treasury as it sold off, despite our less impressive economic data.
It’s difficult to call when trying to determine if this summer will be a good time to own bonds. I do feel that stock markets may experience a significant correction at some point in the year ( NOT a crash!), and that may push money back into long bonds. That time could be right now—but a couple of down days do not imply an immediate trend change. Stay tuned to this blog for more thoughts as the days progress. Regarding a market correction at some point this year–Here’s a link to some thoughts on that call:
The short termed outlook (as seen on the daily charts) for long CDN and US treasuries is not so positive. As such, it’s my call to wait the patterns out before committing to a long bond trade at this time. Below are the charts:
Canadian Long Bonds (XLB-T)
XLB broke neckline support on the daily chart at around $24.50 recently. My “3 day” break rule applies here. The probability is that the neckline may not be broken to the upside for a while. If it is, I would wait 3 days before committing. A rally could turn out to be a head-fake.
US Long Treasury Bond (TLT-US)
A similar break of the key moving averages and a neckline support break at around $126 suggests potential trouble for the long bond. Today brings us to “day 3” of my neckline penetration rule. A rally through the neckline would bring on a similar call to my CDN long bond comment. That is, wait for 3 days for a rally to hold before acting.
Keith on BNN MarketCall Tonight: Wednesday March 11, 2015 at 6:00pm.
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