11 Minute Read

Tales of a Technician: Why Yields Dropping is a Good Thing

July 6, 2022

By | No Comments

There are some interesting developments in interest rate markets this week. And you can trace it back to commodity prices. Remember how we got here. Sky-high inflation drove a behind-the-curve fed to finally get its act together and start raising interest rates. As they are wont to do, the financial markets quickly priced-in a half dozen rate hikes, betting the Fed Funds rate (which now stands at 1.63%) would top out near 3.33% by the end of the year.

Source: CME FedWatch Tool

You can see how higher rates got discounted by looking at bond yields across the curve 6-month vs. 2-year vs. 10-year, etc.).

Treasury yields
Source: Bloomberg

And since bond yields and bond prices move in opposite directions, we’ve seen bonds get torched. The decline has been historic. Indeed, according to Jason Zweig, “It’s the Worst Bond Market Since 1842.”

Year-to-date, the iShares 20-year Treasury Bond ETF (TLT) is down 19.5%

But it’s not just bonds that have suffered. Stocks have slumped as well, bringing untold pain to diversified investors banking on stocks and bonds to be uncorrelated. If being down around 20% for 2022 sounds familiar, it’s because it is.

Year-to-date, the S&P 500 ETF (SPY) is down 20.1%.


While stocks haven’t perfectly mirrored bonds on a daily basis, they’ve tracked each other extremely closely. Should that continue (and I think it will), then what helps one should help the other.

And if you haven’t noticed, bond prices have turned up.

Bonds on the Move

TLT is up 8% off the lows and has turned its daily trend higher. We now have a higher pivot low and higher pivot high. With Tuesday’s close of $116.73, prices have officially closed above the 50-day moving average for the first time in 2022. That’s a bullish change in character. While prices don’t have to scream higher from here, simply stagnating would be a welcome change of pace.

Another way to articulate the bond bottom is to highlight the top in yields. TNX is the ticker for the 10-year Treasury Index. It tracks 10-year yields but you need to move the decimal one digit to the left to get the true yield. Thus, 28.2 is really 2.82%. The bond price bottom has been mirrored by a top in yields. All told, we’ve declined from 3.48% to 2.82%, forming a lower pivot high and breaking the 50-day along the way.

In the short run, we are oversold, so a bounce wouldn’t be surprising. Nonetheless, bears now have a foothold in yields for the first time in a long time. This is a good thing.

The Commodity Unwind

Bond yields aren’t falling in a vacuum. It’s a move born of falling commodity prices. Over the last month, we’ve seen dramatic declines in everything from cotton, wheat, and corn, to nickel, copper, silver, and gold. Even crude oil has reversed course, falling from $123 to $97 in short order.


Wheat was up 80% for the year. Now it’s only up 4.5%. Corn was up 38%, now it’s down 3%. Copper was up 11%, now it’s down 24%. The commodity crash suggests inflationary pressures are easing. That, in turn, is taking the wind out of bond yields’ sails.

These intermarket signals are positive for stocks if you believe it will allow the Fed to be less aggressive with future rate hikes.

Read more Tales of a Technician [FREE Content]

Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.