T-Bond costs fell on Nov. 9, 2023, on information of an public sale of $24 billion in new 30-year T-Bonds that didn’t go very effectively. The setup for this drop was already there, primarily based on the latest run up in bond costs, which has additionally affected the company bond market.
FINRA publishes data for every buying and selling day on what number of company bonds went up or down (Advances and Declines). They separate out the info into Funding Grade, Excessive Yield, and Convertible Securities. This week’s chart above exhibits a Ratio-Adjusted McClellan Oscillator (RAMO) for the A-D information on the Funding Grade class. These bonds are likely to behave quite a bit like T-Bond costs, whereas the high-yield (AKA junk) bonds have a tendency to maneuver extra just like the inventory market.
The latest rally in T-Bond costs has pulled investment-grade bonds up in sympathy, leading to numerous days with many extra Advances than Declines. And that situation has led to an overbought studying for this RAMO.
When the NYSE’s McClellan A-D Oscillator will get as much as an overbought stage, that may typically be a sign of sturdy initiation of a brand new uptrend, and a promise of extra shopping for to return. But it surely doesn’t appear to work that means for this McClellan Oscillator for company bonds. Right here, the message of a excessive studying is extra uniformly one in every of an overbought situation that must be addressed by a pause or a pullback.
Right here is the place I historically remind readers that overbought is a “situation”, and never a “sign”. An overbought or oversold situation doesn’t must matter straight away simply because we discover it. However they do are likely to matter finally. The implication now could be that company bonds and T-Bonds ought to pull again in worth.