‘It’s Weird’ Bond Rout Keeps Going as Three Charts Signal Pause

  • Treasuries head for steepest monthly loss since January 2009
  • Relative strength index shows notes most oversold on record

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Technical indicators show the biggest Treasury market selloff in seven years is coming to an end. So far, they haven’t been enough to stop the rout.

“It’s weird,” said Park Sung-jin, the Seoul-based head of investment at Mirae Asset Securities Co., which oversees $7.6 billion. “I’ve never seen this before. There’s always been some kind of technical correction, but not this time.”

U.S. government securities have tumbled 2.7 percent in November, headed for their steepest monthly loss since January 2009, based on the Bloomberg Barclays U.S. Treasury Index. President-elect Donald Trump’s spending plans, rising inflation expectations and forecasts for the Federal Reserve to increase interest rates are all driving the rout.

The following three charts show Treasuries have reached levels that may attract investors.

CHART 1. A gauge of whether asset-price movements have gone too far, too fast is signaling the slide in the Bloomberg Barclays U.S. Treasury Index is the most overdone since the gauge started in 1973. The 14-day relative strength index reached an unprecedented 17.48 this month. Anything below 30 signals a rebound is due. The last time the index was near current levels was in June 2007. The move kicked off a nine-month rally.

CHART 2. Treasury 10-year yields of about 2.38 percent have risen past the S&P 500 Index dividend yield of 2.11 percent. Treasuries haven’t had such a large premium over stocks in a year.

CHART 3. Treasury 10-year notes now offer fair value, based on the term premium. As recently as July, it showed the notes were the most overvalued on record.

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