Bond Technical Strategy – Weekly by Lloyds TSB

The strategy over the past few weeks has been to anticipate an oversold rebound in stocks as the market recovers (temporarily) from an overly pessimistic position.

The strategy over the past few weeks has been to anticipate an oversold rebound in stocks as the market recovers (temporarily) from an overly pessimistic position. It was expected that this would boost the price of commodities (which have been basing for some time), but would also see the dollar and gold ease lower on short term risk attraction trades. Given this scenario, it was also anticipated that yields would rise as the demand for bonds would start to wane. However, this final result is once again illusive as the price continues to be influenced by major market operations.

It is unusual for bonds and stocks to rally at the same time and it appears one asset class will have to give. Whilst it is not the favoured long term view, the current momentum should see further gains for bonds in the short term, but also suggests the equity rally could run out of steam very soon. The bigger picture charts continue to imply more downside into 2010 and, at best, a few months of range trading could be in front of us. Opportunities to go short bonds once again will be monitored, but for the moment the bulls have the upper hand.

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