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Bonds – buy the US

This week the US Treasury sold 13 week T-bills at a yield of zero for the first time ever (yes, we know it's a discount instrument so at a discount of zero if you must). T-bills are bought for a variety of reasons, almost none of which is the income they provide, so this may not be a significant as the news headlines suggest. Zero need not be a floor to yields, so we might expect more headlines in due course about the US charging investors to lend to it, as has already happened in other countries. So what about the rest of the yield curve - it hasn't moved down in line with this zero yield on 3-month money? We have a trio of signals that may show the way, all in 30-year bonds.

The weekly bond price compressed and moved up some weeks ago, starting a modest rally (1st chart). This compression was re-visited 8 weeks later which provided a second chance to buy. We ignored both chances because there were continued compressions in the daily price (2nd chart) so the situation remained uncertain. They eventually also broke upward and yesterday prices dipped back to the level of the break which we think is now a good chance to buy. The same picture appears in the 3rd chart, which is of yields. These move in the opposite direction to prices and here there was a break down from  daily-scale compressions followed by a rally back to (almost) the level of the break.

This yield signal also means 'buy bonds', so that is what we advise, right now.

Bonds & yields