A Golden Cross Has Formed in the Treasuries Market
2019-1-29 11:38 | By : Mex Group News
After surging since November in response to worry about a potential recession, prices of long-term U.S. Treasury debt have dropped sharply since early January. Credit Federal Reserve Chairman Jerome Powell, who indicated that the central bank will be patient in increasing interest rates in 2019.
Investors had feared that the central bank could spark a recession by raising rates too aggressively. The dovish tone painted a reassuring picture. Some investors responded by shifting assets into riskier areas, such as stocks, from Treasury debt, which is generally seen as a haven.
As a result, the iShares 20+ Year Treasury Bond ETF (ticker: TLT)—a proxy for prices of long-term Treasuries—fell 3.2% in the two weeks following Powell’s speech on Jan. 4.
But things might turn around soon, according to some analysts. The iShares fund started picking up again last week, rising 0.8%, triggering a technical signal called a golden cross on Friday.
Will Treasuries Run Higher Again?
A golden cross occurs when the 50-day moving average of an asset price moves above the 200-day moving average, usually indicating a downtrend has run out of momentum.
We might see the end of the downturn for Treasury prices soon after the Federal Open Market Committee’s two-day January meeting ends on Wednesday. Although stocks jumped and Treasury prices dropped last Friday following a report in the Wall Street Journal that the Fed might stop scaling back its holdings of bonds and other assets—part of its effort to remove crisis-era economic stimulus—much sooner than expected, TD Securities strategist Michael Hanson thinks the market reaction may have been premature.
"These reports did not contain any new information about Fed views, and a concrete 'roadmap' for the balance sheet from Fed officials at the January FOMC meeting strikes us as unlikely," Hanson wrote in a Monday note. He thinks Powell will likely stress flexibility in the Fed's approach to its balance sheet at a press conference to be held after the monetary-policy meeting on Wednesday, but will offer few specifics.
Investors might be disappointed by the lack of more-explicitly dovish guidance, Hanson says. The January stock rally could reverse itself, and Treasuries could resume the rise seen at the end of 2018.
When Treasury prices increase, bond yields decline, bringing down the cost of home mortgages and other loans.