Bonds Are Rallying. Here’s What It Means for Stocks, Gold, and Bitcoin
Key Takeaways
- Treasury yields fell, lifting bonds and helping fuel gains across stocks, gold, and bitcoin.
- Gold and bitcoin broke through key resistance levels and are trading above their 200-day moving averages.
- Health Care was the best-performing sector, led by Moderna's 177% rise.
The U.S. Treasury Department’s announcement that it would double the size of its long-end bond buybacks was the story of the day. Bonds, gold, bitcoin, and stocks all moved higher, which is an unusual combination because these assets rarely rise at the same time.
Bond Prices Rise
The iShares 20+ Year Treasury Bond ETF (TLT) gapped higher and is now trading above its 21-day exponential moving average (EMA).
When bond prices rise, yields move lower. The 30-year Treasury yield climbed as high as 5.33% on Tuesday, then dropped to just below 5.20% following Wednesday’s announcement. The 10-year yield also moved lower, falling to 4.65% after reaching a high of 4.75% on Tuesday.
What’s interesting is that the move in the 30-year yield wasn’t as extreme as it might seem at first glance. On a five-year weekly chart of the 30-Year US Treasury Yield ($TYX), you can see that yields were at similar levels in October 2023 and have touched this level a few times since.
Gold Breaks Above Resistance
Spot gold ($GOLD) began moving higher in early August; however, Wednesday’s price action pushed it above its short-term resistance levels (blue dashed lines). It has now moved above its 200-day simple moving average (SMA). The question is whether gold will be able to stay above this level.
Bitcoin Awakens
Bitcoin to U.S. dollar ($BTCUSD) gained more than 7% following the Treasury announcement. It broke out of its June–August trading range on strong volume, and, like gold, has moved above its 200-day SMA. The Moving Average Convergence/Divergence (MACD) in the lower panel indicates that momentum is slowly increasing. What’s encouraging here is that the MACD crossover took place at around the zero line, which is much more supportive of an uptrend. The next level to watch for is 74,000.
The drop in 30- and 10-year Treasury yields helped shift investors into risk-on mode, sending stocks higher. But technology and semiconductor stocks weren’t leading the charge.
Health Care Leads
Instead, Health Care took the top spot in sector leadership. Moderna’s 177% gain following positive late-stage trial results for a cancer vaccine gave the sector a major boost. The Health Care Select Sector SPDR (XLV) gapped higher and notched a record close.
Dollar Collapses
Falling Treasury yields also weighed on the U.S. dollar. The dollar plunged and is now trading below its 200-day moving average, and at a support level. A break below the blue dashed horizontal line could take the dollar to its April–May lows, the next area of potential support.
The Bottom Line
After weeks of stagnant market action, it was refreshing to see some movement, even though it was unusual. The bigger question is how long this will last, especially in bonds.
Wednesday’s FOMC minutes didn’t have much impact on the market, but higher oil prices and ongoing geopolitical tensions are still in the background. Both could put renewed upward pressure on bond yields. For now, take it one day at a time.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
