Don't Ignore This Chart!

Is the bond market sending us a message?


When markets are in transition and the bigger picture needs our attention it is always good to keep an eye on the yield curve.

The absolute yield levels of the various maturities on the curve, starting at 3-Months all the way out to 20+ years are important to monitor. But what's probably even more important to monitor is the change of the shape of the curve.

Relative Rotation Graphs can be of help analyzing the shape and the change in shape of the curve. The picture above shows the rotation of the various maturities around the 3-7 year maturity which is the benchmark (center) for this group.

You're looking at ETFs (as a proxy for bonds) so rising prices means falling yields and vice versa.

We know that overall yields are on the rise for a while already, i.e. the accompanying ETFs are declining. What this RRG above shows is that the shorter maturities are falling not as fast as the longer maturities. Or short-term yields rise faster than long-term yields.

This means a "flattening" curve which is characteristic that belongs to an economy that is in a full recovery or (moving into) an early recession.

With the direction of the various maturities on the RRG so pronounced the question arises whether the bond markets are sending us a message?

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Julius de Kempenaer | RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered TradeMarks ®; of RRG Research

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Julius de Kempenaer
About the author: is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on in July of 2014. After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers). Learn More
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