What Is Happening with Government Bonds and Junk Bonds?

Statistically, one of the most bullish days of the year, July 1st was rather surprising.

Our family of stock market ETFs was not so happy on Monday.

Cryptocurrency was a bit stronger.

However, bond yields were the biggest surprise.

Sign up for our FREE newsletter
and receive our best trading ideas and research

The 10-year bonds rose by 3.24%. And the long bonds (TLT) rose by 3% and the junk bonds fell a bit more than 0.5%.

tlt government bonds etf lower investing chart july


Is it the strong economy?

ISM came in softer today.

Earnings expectations are dropping.

The Fed remains convinced inflation will return to 2%.

The best thing we can say about the high long bond yields is that the SPY is outperforming TLT. Risk on.

The worst thing we can say is that the pressure on the already pressured areas of the market continues.

And amazingly, commodities remained robust. 

Gold, silver, oil, coal, copper wheat, soybeans, even uranium all did well.

Looking at the chart, TLT broke down below the 50-DMA on both price and momentum.

Plus, this is the weakest TLT has been against the SPY for a very long time.

Looking at Junk Bonds (HYG):

hyg high yield bonds etf trading lower bearish investing chart july

HYG broke below the 50-DMA.

HYG is a great measure of risk on or off. Today is saying off.

Bonds traders buy high yield debt bonds when they believe that companies with poor balance sheets will do ok and therefore pay higher yields.

Today, not so much.

HYG sank in momentum and underperforms the benchmark.

76.50 has been huge support.

Therefore, should HYG falter more, are we bothered, or do we like that both HYG and TLT are underperforming the super strong SPY?

I’ll go first.

Something will break if this trend continues-and it does not seem like the FED will help.

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.