Bond charts – AGG and TLT – Oversold on Monthly Technicals


Both the Barclay’s Aggregate (AGG) and the iShares Barclay’s +20-year Treasury ETF (TLT) have reached “oversold” status on the monthly charts, which normally doesn’t happen without some severe pain inflicted to get there.

Click on the above charts and expand the graph so that you can get a better look.

After doing that, look at the bottom panel which denotes “overbought / oversold” conditions and then note how the gray and red lines are coalescing at the bottom of the panel.

Both reflect heavily oversold conditions.

That being said – if there is a potential secular shift in interest rates, like the 1970’s or say, 2008, the technicals can get oversold quickly – even on the monthly chart – even though the underlying security can continue declining.

For example, the Nasdaq’s 80% drop between March, 2000 and October, 2002, shows that it was oversold on a monthly basis by the end of 2001, helped undoubtedly by 9/11 and what followed, but the actual Nasdaq Composite didn’t start to stabilize until late 2002, and the rally didn’t start March, 2003.

Summary / conclusion: Small amounts of TLT and the AGG were bought this week with the Jay Powell testimony, but next week’s CPI data and the jobs data may still not be “weak enough” to drive a rally in the long end of the Treasury curve. It’s likely investors will need to see the Fed / FOMC start to say that rate hikes are ending and the Fed will give the tightening time to work.

There is room for more “longer-duration” fixed-income instruments, but why anticipate the lower inflation, weaker economic data conditions that will be needed to drive outperformance in the longer end of the Treasury yield curve. Let’s just wait on it.

The battle between the “inflationistas” and the “recessionistas” has been going on for 15 months or longer.

I can’t help thinking about Jamie Dimon’s comments in early 2022 about the “economic hurricane” that was due to begin shortly and yet never did.

The inflation hawks have had it more right than the recession hawks.

Not one (think of Bill Burr, the comedian) i.e. “not one” (hysterically) economist, strategist, pundit, guru, CNBC visionary has called for a US economy that can grow at a 2% GDP rate and see inflation “disinflate” or decline.

The cassandras are positioned at the hysterical ends of the spectrum, which is what gets the media attention.

The US stock market has held up remarkably well given the bond market action. But we also have to assume that might not last either.

Thanks for reading…




Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.