US Bond Yields could surprise
11 Feb 2021 ● 06:45 AM
The 10-year bond price came close to making a double bottom and turned higher. The daily and weekly momentum indicators are close to both crossing over to the buy-side. I am therefore making some changes to the wave structure. Given the triangle formation between October and December, we have probably completed wave 1 down for US bonds, and a wave 2 bounce back is about to start. What this will mean is that we may go for a 50% retracement near the wave IV high [138.2] where the triangle formed or the 61.8% retracement at 138.6. This could take place over the next 2 months. We should also watch out for the possibility of a larger retracement just in case. What rising bond prices should mean though is that US bond yields will start to go down.
Falling yields should relieve the market from some pressure that was building up due to the rising yields. But on the other hand, rising yields are usually associated with a risk-on environment and falling yields for the risk of environment. What this can also mean is that US equities could enter another consolidation phase before going higher. Since the correlation is not a hundred percent simply use this as a warning to look out for a possible trend reversal in the near-term.
On the other hand, this is good news for precious metals that usually come under pressure when bond yields are rising. In fact, this may have been 1 of the reasons why the falling dollar did not have a strong enough positive above on gold. Once yields start going down real interest rates term for the negative and that should provide gold with an impetus to rise during what I already called a seasonally bullish period for precious metals. Gold should take off in wave 3 of a new advance in the months ahead.