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Brackets Busted!

Published on March 24, 2024

John Roque

If anyone reading this note picked any of the following bracket busting upsets – Oakland over Kentucky, Duquesne over BYU, Yale over Auburn, James Madison over Wisconsin, and Grand Canyon over St. Mary’s – then you have a non-decaying free option from me to buy you lunch when I am next in your town.

But there’s another potential bracket busting scenario brewing and it has nothing to do with the NCAA men’s, or women’s, hoops tournament. The potential bracket busting scenario is for those who’ve made the decision to still be short global government bond markets (being short here means shorting price). And I think this is going to be a bracket busting trade because despite the deteriorating price / technical action for yield (and improving action for price), many of the market participants I speak with generally prefer being short (i.e., again this means being short price) government bonds owing to their belief that another bout of raging inflation is nigh and / or the US government’s debt levels are reaching ever more worrying levels.

As the table below shows, Technical Scores across the US YC are Neutral (37 ½% of the entire 62 ½% Neutral figure) and the Technical Scores for the US 12-Month, 2-Year and 3-Year tenors moved lower in the last week. 2s and 10s for Canada and the UK are also Neutral as are 2s for Germany and Italy. However, yields are weakest for the 10s in China, 2s and 10s in France, 10s in Germany, 10s in Italy, and the 2s and 10s in Spain. Pushing the mostly Neutral Scores into the concerning camp is that over the last week not one of the yields in this table moved up in Score while 12 moved down in Score. In addition, only 50% of the yields on the list are above their 50-Day Moving Averages while a fragile 12 ½% are above their respective 200-Day Moving Averages.

To emphasize just how weak the yield trends are / are becoming, consider how uncomfortable you’d feel if you owned 24 stocks in your equity portfolio and only 12 ½% were above their 200-Day Moving Averages? In short, get long Notes and Bonds. Please check the table and charts that follow.

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US 10-Year T Note Yield – Daily – w/ 50- and 200-Day MAs and MACD. A move under 4% for the 10-Year Yield will help investors realize the 10-Year Note (price) is a buy.

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