On Monday, the Fed announced it’s buying everything. Sell it your Treasury Bonds. Sell it your mortgage debt. Sell it your corporate bonds. Heck… sell it your bond ETFs.

“We’ll buy it,” they said. 

Like Crazy Larry at Larry’s Used Cars says in his late-night commercials, “There’s no deal we won’t make.”

And, the bond market screamed higher on the news. After all, if the Fed is willing to buy whatever we have, then there’s no risk to the trade. We can buy the 10-year Treasury note, for example, at a yield of just 0.76%, and the Fed will take it off our hands when it’s time to sell.

It’s nice to have a guaranteed backer behind any trade you make – especially when that backer has the “full faith and credit” of the U.S. Treasury at its disposal. It’s as close to a risk-free trade as most common folks will ever see.

So, it’s curious that Treasury notes didn’t rally even stronger on the news.

Think about this…

Last week, the yield on the 10-year T-note dipped below 0.4%. That was before the Fed said, “We’ll buy everything.”

In other words, there were so many “natural” buyers the yield dipped all the way below 0.4%. 

Yesterday, with the “artificial” buying of the Fed, the yield couldn’t break 0.70%.

That tells us that even the Fed’s guaranteed buying pressure announced Monday couldn’t top the buying pressure of normal market forces last week. So, Treasury bond and note prices likely topped last week. Interest rates have likely bottomed. 

Two weeks ago, we argued the bond bubble was getting ready to pop. The action on Monday suggests it has indeed popped.

Long-term interest rates are headed higher from here. Bond prices are headed lower. So, if you ask me, traders will do well betting on the downside for bonds in the coming days.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Today we hear from David and Benjamin, Jeff Clark Trader members, who share their thoughts on the current market climate with Jeff…

Jeff, I always appreciate your opinion on the markets. It’s good to note that from a positive stance, the Bullish Percentage indicators of the S&P 500 ($BPSPX) and the Nasdaq Composite ($BPCOMPQ) have looked as if a bottom may be close, but always possible to retest. Unprecedented market movements always make everyone re-evaluate their indicators, but in hindsight, they usually prove important.

– David

Hi Jeff, I’m a Delta Report and Jeff Clark Trader subscriber, so I’m obviously a fan of your work, but I think you’re misjudging the coronavirus outbreak and markets. While we may see short relief rebounds to vastly oversold conditions along the way, the direction of the market is down.

I’m an MD and MPH (Master of Public Health), and there is no “uncertainty” about the approaching healthcare emergency and humanitarian crisis we’re about to experience in our country.

The markets have certainly reacted in an unprecedented manner to the coronavirus outbreak and its likely economic consequences, but in my opinion, this reaction is warranted.

Unfortunately, there is no doubt about the worsening trajectory of the disease and that unprecedented fear will continue to direct the markets. I think you should consider taking a more bearish stance. Thanks for your work and for taking the time to listen to my opinion.

– Benjamin

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].