Interest rates have been rising since December, with many expecting them to hit their November highs again and potentially continue onward. However, this week’s action suggests we may be seeing something different happen. That has implications for the iShares 20+ Year Treasury Bond ETF (TLT), highlights Tom Bruni, head of market research at The Daily Rip by Stocktwits.
If you’ve been following along, we’ve discussed the labor market’s softening at length. But one key measure we’ve focused on has been total nonfarm job openings, which fell again in April and are now just above their pre-pandemic peak.
More importantly, the ratio of jobs available per unemployed worker dipped from 1.30 to 1.24, its lowest level since June 2021.
This is great news for the Federal Reserve and its fight against inflation, given that a tight labor market keeps upward pressure on wages. And for the last few months and quarters, upward pressure on wages has abated such that they’re still growing faster than inflation, but not at historically high levels.
This is likely why we saw a rebound in the bond market Tuesday, and technical analysts everywhere pointed out the noticeable change in character.
The TLT is one of the more popular vehicles for betting on interest rate direction because its duration gives it a higher beta than its shorter-duration peers. Right now, the ETF is breaking out above two significant levels. The first is the downtrend line from its December highs, and the second is its 200-day moving average (which many market participants use to track an asset’s long-term trend).
Now, does this mean that interest rates are done rising forever? Certainly not. But what it suggests is that in the near term, momentum may have shifted to the downside in rates (and to the upside in bonds).
Should this move stick, the playbook for which sectors of the market are performing best might switch up…which is why it’s worth highlighting.
