Macro Tides – “Treasury Yields Break Out”
Financial markets handled the FOMC’s decision to increase the tapering of their purchases from $15 billion a month to $30 billion without a hick up. The prospect that the FOMC expects to increase the federal funds rate 3 times in 2022 was a yawner. The 10-year Treasury yield has been anchored at 1.50% which has supported an over-valued market since many valuation models use the 10-year Treasury yield as the benchmark. Bond market wizards have concluded that the Treasury market’s sanguine reaction to the highest level in inflation since 1982 means the Treasury market is telling them and equity investors they have nothing to worry about.
Financial conditions have been the loosest in history but that is going to change as the FOMC reduces QE liquidity and begins to raise rates. More importantly, Treasury yields are set to climb as the Treasury dramatically increases supply just as the demand from the Fed is going to disappear in March. Inflation is going to get worse through February at least and core inflation is not expected to fall as much as headline inflation during the second quarter. This dynamic is discussed in detail in the January Macro Tides which is expected to go out on January 4.
In a December 28 ‘Gains with Andy Giersher’ podcast I noted that Treasury yields would indicate that the trend had turned higher if the 10-year closed above 1.53% and the 30-year closed above 1.94%. On December 29 both closed above their respective levels.
Treasury yields are expected to increase in 2022.
What level in the 10-year Treasury and 30-year Treasury will indicate that Treasury yields have broken out to the upside?
How high might they go?
Will higher Treasury yields cause a multiple contraction in the S&P 500?
How much of a correction could the S&P 500 experience?
The Dollar bottomed in June 2021 as forecast and is expected to move up in 2022. How high will the Dollar go?
There are important resistance levels for Gold that formed since the August 2020 high of $2070. Will Gold break out or break down?
In the Weekly Technical Review I discuss how fundamental news often follows the chart patterns and technical indicators in each market. This combination has helped me identify trends and more importantly impending reversals in the S&P 500, Treasury yields, Dollar, and Gold.
Check out MacroTides.com to learn more. If you would like a complimentary issue send an email to JimWelshMacro@gmail.com