FED PUSHES YIELDS LOWER TREASURY NOTE ETF BREAKS RESISTANCE TREASURY BOND ETF REMAINS RANGE BOUND INFLATION-PROTECTED BONDS CONTINUE TO OUTPERFORM - YEN GIVES UP LAST WEEK'S GAINS

QE AND BONDS YIELDS... Bonds surged after the Fed announced its plan to purchase some $300 billion of long-term Treasuries last Wednesday. This quantitative easing (QE) is designed to push Treasuries higher and yields lower. Remember, yields move down as Treasuries move up. Chart 1 shows the relationship between the 7-10 Year T-Note ETF and the 10 Year T-Note Yield ($TNX). Notice that they are mirror images. The 10 Year T-Note Yield is currently around 2.8%, which is below the February-March highs around 3%. Even so, I bet the Fed would like to see these yields even lower. Many key interest rates, including mortgage rates, are tied to Treasury yields.

Chart 1

BOND ETFS ARE MIXED... In essence, the Fed is trying to trump the bond market with an intervention. But will it work? The jury is still out. While the decision to purchase $300 billion worth of long-term Treasuries is bullish for bonds, the Fed decided to spread its purchasing power across different maturities (from 2 year Notes to 30 year Bonds). This means different maturities will benefit at different times. Chart 2 shows the 20+ Year T-Bond ETF (TLT) meeting resistance from its old nemesis around 107. The surge lasted one day and TLT pulled back over the last six days. In contrast, Chart 3 shows the 7-10 Year T-Note ETF (IEF) surging above its February high last week. The ETF also pulled back over the last six days, but this decline looks like a potentially bullish falling flag. Broken resistance around 95 turns into support, which is also confirmed by the 50-day moving average. A flag breakout would signal a continuation of last week's breakout.

Chart 2

Chart 3

TIPS CONTINUE OUTPEFORMING TLT AND IEF... When it comes to Treasuries, the Inflation-Protected Treasury ETF (TIP) continues to show relative strength. John Murphy featured TIP on 21-March with a break above the 200-day moving average. Murphy also noted that TIP was the strongest bond performer last week. In addition to the 200-day moving average break, Chart 4 shows TIP with a big flag breakout last week. While the 20+ Year T-Bond ETF and 7-10 Year T-Note ETF pulled back over the last six days, notice that the Inflation-Protected Bond ETF formed a flat consolidation and is holding up much better. The bottom indicators show the relative strength comparative (Symbols are TIP:TLT and TIP:IEF). These ratios rise when TIP outperforms and fall when TIP underpeforms. Both ratios moved higher the last 2-3 weeks as TIP outperformed the other bond ETFs.

Chart 4

YEN BATTLES THE 200-DAY... With last week's policy statement, the Fed also roiled the currency markets. The Dollar plunged, while the Euro and the Yen surged. While the Euro is holding most of last week's gains, the Yen has given them all back. Chart 5 shows daily bars for the Japanese Yen Trust ETF (FXY) . The ETF surged to 106 last Thursday and met resistance from the 50-day moving average. In addition, there is resistance just below 106 from broken support. Overall, a double top formed in December-January. The February support break confirms the double top with a downside target towards the mid 90s. Only the 200-day moving average stands in the way of this double top target. Chart 6 shows weekly bars with the 40-week moving average, which is equivalent to the 200-day. The next support level stems from the July trendline in the 95-97 area.

Chart 5

Chart 6