Bond Technical Strategy Weekly by Lloyds TSB

The long term outlook for the markets still favour lower yields as the rally in equities reverses, but the market is also interested in trading the medium term trends and in that regard the pressure continues to mount on core bonds.

Market Overview

The long term outlook for the markets still favour lower yields as the rally in equities reverses, but the market is also interested in trading the medium term trends and in that regard the pressure continues to mount on core bonds. Although volatility has reduced this week and broadly speaking, bonds are still within range parameters, the risk is
starting to revert towards a correction.

The reasons for this are that the commodity rally has broadened, taking with it emerging market equities and making core bond yields look stingy. This, in a self-feeding wave, is improving the back drop for the stocks which have led the broader indexes downwards.
Therefore, this renewed appetite could last some months. The broader picture does still favour an equity correction, but the risk of not being in a substantial rally is worth the pain of having to re-enter bonds at a higher level.

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