Charts Not Encouraging for Bond ETFs

Markets ETF Trends

Perhaps this will change if, as expected, the Federal Reserve declines to raise interest rates this week, but for the moment, it appears some popular fixed income exchange traded funds are facing technical hurdles. That group includes the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT).

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Moreover, U.S. fixed-income market may find further support from overseas demand, especially with international bonds offering paltry yields. For instance, Japanese 20-year notes and the Danish 10-year bonds saw their yields go negative for the first time Wednesday.

Related: If Rates Rise, Look to These Junk Bond ETFs

The low yields in overseas markets have also helped support U.S. Treasuries as an attractive alternative source of yield for foreign investors. According to Fitch Ratings, a record $11.7 trillion of global sovereign debt has now entered sub-zero territory, reports Adam Samson for the Financial Times.

“For perspective, the monthly chart shows how TLT has traced a possible ending diagonal pattern since 2008. It also recognizes the boundaries of a channel. In recent months, price retreated from a test of the upper channel boundary and found support near the one-quarter channel harmonic. Meanwhile, the Lomb periodogram (a cyclic indicator) appears ready to turn downward,” according to See It Market.

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Weakness in TLT should help the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which tries to reflect the -2x or -200% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index.

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Alternatives to TBT include the ProShares UltraPro Short 20+ Year Treasury (NYSEArca: TTT) takes the -3x or -300% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index. Additionally, the Direxion Daily 20-Year Treasury Bear 3X (NYSEArca: TMV) tracks the -3x or -300% daily performance of the NYSE 20 Year Plus Treasury Bond Index.

“Our main scenario considers the top to be in for the treasury bonds ETF (TLT) with the July 2016 high. If that is the case, then the Summer decline represents only part of the first leg of a new downward structure. A minor upward retracement from last week’s low could test the resistance levels shown on the chart, near 135.90 and possibly 137.60. After that, we would expect the decline to continue for a few more weeks before we would need to consider the possibility of a larger upward retracement,” adds See It Market.

For more information on the fixed-income market, visit our bond ETFs category.

iShares 20+ Year Treasury Bond ETF

Tom Lydon’s clients own shares of TLT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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