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Inside Markets — Thirty-Year Bonds

Thirty-Year Bonds

October 30, 2024

Thirty-year bond prices have reached the most oversold condition (put/call ratio) since last October and attempting to bullishly reverse after systematic buy signals last Thursday and again yesterday. In yield terms, the 30-year is also running into technical trendline resistance near 4.50%. Any pullback in yields would likely gain traction below ~4.38% to a near-term floor near ~4.15%. Ten-year bond prices are also oversold with similar but less strong reversal indicators seen on Thursday/yesterday. In yield terms, we identify technical resistance at ~4.31% with a break below 4.18% gaining traction to the 4.0%-4.03% range.

Higher bond yields have led to outperformance in large cap secular growth stocks (NDX at all time high), while more cyclical/smaller stocks have lagged rather than shown signs of outright weakness. One of the most apparent trends over the past few weeks has been the outperformance of cyclical stocks relative to defensive groups as macro data has been coming in stronger than expected. Any reversal to lower yields will likely drive noticeable outperformance in cyclical and small/mid cap stocks. The S&P 500 (SPX) and Russell 2000 (RTY) both trade near 21.5x forward earnings, while the S&P Midcap 400 (MID) trades at a more reasonable 15.5x. As we mentioned yesterday, a known election outcome could be a clearing event for equity markets with likely outperformance in YTD laggards.

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