Inside Markets — Technical Outlook Remains Bullish

Last week’s backup in bond yields was almost entirely driven by rising term premium – this is the extra yield investors require to hold longer-term bonds. While the 10-year Treasury yields only rose +3.4bp on the week, it traded in a 20bp range, driving the MOVE Index (bond market volatility) higher by +4.4%. The rise in term premium followed a very weak 20-year JGB auction and reports of progress in passing the House reconciliation budget bill. Today’s headlines about the BOJ looking to reduce long-dated JGB issuance and GOP Senators pushing back on the House bill unwind some of the increase in term premium. Increased bond market volatility can create a headwind for equity markets, but it doesn’t usually spill into increased equity volatility unless it’s a >2 standard deviation event. In current 10-year yield terms a 2z event equates to ~60bp.

The SPX gapped through key technical resistance on May 12 following the announced 90-day US/China trade détente. From a technical perspective only, that upside gap shifted the technical outlook back to a low-volatility bullish regime with a near-term price objective of ~6150 (midpoint). In the real-world, the key pieces of a bullish hypothesis require resilient/stable macro data, positive earnings revisions, and further trade de-escalation. Tomorrow’s earnings report from NVDA will be an important update.