Let’s discuss the technical and fundamental setup for 30-year mortgage rates and 10-year Treasury yields.
Three Technical Possibilities, One Dismissed
- Blue: Bull flag implying higher rates. A breakout is underway.
- Green: Slanted head-and-shoulders pattern, implied direction is lower rates.
- Red: Normal head-and-shoulders pattern, implied direction is lower rates. Discarded.
We can discard the red H&S pattern because it failed. The blue and green patterns are valid, simultaneously.
The slanted H&S pattern broke in the required direction forming a bull flag in the process. The slanted H&S pattern is still intact as long as the green trendline is not broken.
Q: So you are saying mortgage rates may rise or fall?
A: Correct
As funny or ridiculous as that sounds, technical players long mortgage bonds would have taken profits when rates stalled near 6 percent.
The key purpose of TA is to provide entry and exit points for trades and that horizontal red line performed beautifully cautioning mortgage rate bulls to exit their longs.
Technically speaking, there is no safe entry here because there is no reasonable place to put a stop.
10-Year US Treasuries
The 10-year US Treasury chart is a much easier to understand technically.
Assume one took a technical position betting on a bond rally on any of those three red candles in boxes.
The first one is a questionable but possible entry. The next two were great entries with easy stop-out points at the then-recent high.
Technical traders would have stayed in the long position, taking profits at the blue trendline (strong technical support) expecting a bounce in yields.
What now?
Technical traders as well as fundamental traders who use TA as a supplement might contemplate a long trade here with as stop just above this level, if they think the next economic reports will be bond-friendly.
I am open-minded for the time being. I also suspect the next jobs report, days before the election, will be miserable.
Those who think the BLS will manufacture a good jobs report to aid Harris would want no part of this idea.
Fundamental vs Technical Trading
Fundamental traders can be wrong for a long time.
Good technical traders have stops close by and get stopped out earlier. But technical traders are much more subject to whipsaw.
Some combine the two.
Are Bond Market Yields Rising Due to a Surge in Trump’s Election Odds?
Earlier today I addressed the question Are Bond Market Yields Rising Due to a Surge in Trump’s Election Odds?
My answer is no. Correlation is not causation and a close look shows that three out of four bond yield surges are directly in response to same-day economic news.
It’s amusing the credit people assign Trump, both ways.
Harris supporters say bond yields show Trump will raise inflation. Trump supporters say bond yields show Trump will deliver a stronger economy.
But it’s not about Trump, at least right now. Yields rose on stronger than expected economic data.
My long-term prognosis isn’t that great, no matter who wins, especially regarding tariffs.
For discussion, please see Trump Will Raise Taxes and Increase the Price of Goods
David Stockman suggests that’s the price we pay to avoid Kamala Harris.
Green:Slanted Head and Shoulders.
Since 17 Sept Ten year note rates have increased from 3.6 to 4.3 while three month treasuries decreased 4.88 to 4.58. This simply a reflection of equity precrash debt market demand with those exiting equity market buying short term debt and narrowing the 3 month minus ten year inversion to – 0.3. After the incipient global equity crash on 5 Nov, both instruments’ interest rates will fall dramatically with 3 month minus ten year normalization followed by with a rapid lowering of fed fund rates thru May-June of 2025.
LOAN SHARK TYPE OF DEBT is not counted but growing fast! Also trying to collect money owed to you is getting harder I am not extending any credit anymore! Yes I will lose some business, but I will not work for free and have to waste time chasing money! This by itself is an bad economic omen! I checked with bankruptcy attorneys I know, and they say there will be a big uptick in filing once the filers can come up with the filing fees and down payment for there fees like criminals they find the fees attorneys need, at the expense of creditors! Also it is sick that many credit cards are charging between 30 to 40%! more bankruptcies coming, there will be more bank failures!
i ching didn’t help.
Tea leaves are ambiguous.
I may have to sacrifice a pigeon.
I only use Chart/TA techniques that are reliable. H&S’s fail ALL the time, Mish.
Thus, you were right to toss it. BUT, had it NOT FAILED, would you stick with it?
NOT ME.
The big questions, to remain unanswered since polling does not count these types: UNDECIDEDS (not likely to be swayed) and those who do not vote (done, not going to the ballot boxes) are not gonna change. **RIGHT?
Thus, there is NO TELLING who could win. HAVE Democrats or Republicans switched? NO FREAKING WAY.
———————————————————–
IT COULD BE that the **NO-VOTERS, such as myself, consider Kamala so insidious that we MUST got vote.
**NOT ME. BUT SOME STILL BELIEVE THAT THE FUNCTIONAL PARTS Of our voting system, are working REALLY WELL. NOT ME!
WHY?
Because we cannot trust our Voting system. WOULD YOU BET YOUR FORTUNE on the idea that there is NO MANIPULATIONS? Mish, would ya?
Go check out the Gateway Pundit with the irregularities they’re already tracking.
The potential voter suppression going on in Bucks County (next door to Philly), if true, looks like the sort of thing the FBI should be investigating. Not enough printers. Jammed printers, people being told they won’t be served by closing time, election offices closing before the times listed on the door.
Rates have gone up for personal loans from a year ago. The only ones that seemed to have benefited from the marginal drop are banks getting cheaper Fed rates from my understanding.
Where? Hopefully up. The Fed was way early with lowering interest rates.
There’s no telling how long the 10Y treasury needs to stay elevated to get home prices to fall much further. A year, two, three? Either home prices fall from high rates or they succumb to a recession. I would prefer the former to the later. But make no mistake about it. Home prices need to fall.
As usual, it’s still month-to-month, but for now it looks like the economy remains on solid footing overall. There are pockets of concern but nothing quite yet to justify further rate cuts from the Fed, especially with the expected Q3 GDP of 3% or more on coming Wednesday.
Can’t say I know too many market technicians shopping for a mortgage, Mish.
Please explain the difference between “fundamental traders” and “technical traders” for the uninitiated here. Yours truly included. ( Not sure about TA and H and S either). Thanks in advance.
That’s why we have Google.
TA is show business shorthand for burlesque dancers.
The rate cut was premature and done to help Harris. Now it’s time to get back to reality.
Amen!
1M TNX test Jun close @4.342.
Chef’s kiss for using “correlation is not causation” and “head and shoulders pattern” unironically in the same essay.
It would help if you could think.
I know! It totally sucks blindly putting your money in index funds and retiring at 40.
Grad school was such a waste of time.
The private sector will have to shrink to make way for these huge fiscal deficits.
Oh NO! 7%!!!!
Some of us paid 15% for our first homes in the 1980s.
And this, after the FED cut rates by 0.5% Ya think there might be embedded premia for RISK and INFLATION creeping in? Or maybe it’s the real rate increasing because the lending market no longer thinks the opportunity cost of lending is around four percent. And the other option is the FED is no longer in control.
@Flingel…I believe you could be correct on all counts….the ‘perfect storm’
“Some of us paid 15% for our first homes in the 1980s.”
And what was the purchase price? $75,000? Okay, boomer.
69k for a three family stone row house in Brooklyn actually
Okay Boomer? Minimum wage in 1983 was $3.35 in my state. That won’t begin to cover the tip to get a “man bun” trimmed these days.
Until the Fed starts to buy or sell, they’re never really in control of long-term rates.
The market simply bought into the hype that the economy was easing way more than it actually was as the summer came to an end. The tail was wagging the dog, and the Fed & the market got way out over their toes.
Granted, everything could change by the end of the year, but for now, we all realize the bond market is simply readjusting to the reality of 3% GDP which is something Mish has yet to do.
I hope that the shreaking cat ladies cancelling their Wapo subscriptions are trying to buy a home … Lol. Rates, big ranges, sloppy like the algos have taken over.
The.WaPo lost $71 million last year. Will the last subscriber turn off the lights?