Is the bond bear market finally over? That is the question everyone is asking now that bond prices rallied sharply following the November FOMC policy meeting. As noted in the #BullBearReport this past weekend:
“On Wednesday, Jerome Powell’s speech sparked a broad rally in stocks and bonds as market expectations for further rate hikes collapsed. There was nothing new about the Fed’s recent policy announcement as they maintained that higher Treasury yields are doing their work in slowing economic activity and, ultimately, inflation. However, they did, again, as expected, leave open the possibility of further rate hikes as needed.”
- POWELL: PROCESS OF GETTING INF. TO 2% HAS A LONG WAY TO GO
- POWELL: FULL EFFECTS OF TIGHTENING YET TO BE FELT
- POWELL: NOT CONFIDENT WE’VE REACHED STANCE FOR 2% INFLATION
“Given that the Fed did little to talk up the projections of further rate hikes, the market took this as meaning the Fed is likely done hiking rates. Of course, that means, from the market’s perspective, the subsequent actions will be ‘rate cuts.'”
With the more “dovish” tone of the Fed’s commentary, combined with a much weaker-than-expected employment report last Friday, expectations for higher yields collapsed, sending bond prices higher. As shown, on a short-term basis, bond prices rallied sharply to the “neckline” of a potential “head and shoulders” low. That technical pattern, which is bullish for bond prices if it completes, is supported by a positive divergence in both the MACD “buy signal” and the Relative Strength Index (RSI).