The financial media are running wild with their coverage of the Bank of England's surprise announcement of its temporary purchase of UK bonds. Reporters on both sides of the pond are seeking "experts" to weigh in on the action and its implications for interest rates and inflation.
Let's check out four charts to see what we might glean from the moves.
In this daily bar chart of the yield on the 10-year U.K. gilt, below, we can see that yields have climbed rapidly from around 0.75% back in December to around 4.50% earlier today. Yields are firmly above their rising 50-day and 200-day moving average lines. We do not know what volume might be, but the 12-day price momentum study shows that the pace of the advance has not slowed.
In this daily Japanese candlestick chart of the 10-year U.K. gilt, below, we can see a large red (bearish) candlestick marking a one-day reversal. A top reversal may mean a sideways move in rates and not a decline.
In this weekly Japanese candlestick chart of the 10-year U.K. gilt yield, below, we can see that yields were close to zero back in 2020 and they have gradually turned higher. The 12-week price momentum study shows no slowing in the pace of the rise.
In this daily Point and Figure chart of the 10-year U.K. gilt yield, below, we can see a yield target of 12.31%. Ouch!
In this weekly Point and Figure chart of the 10-year gilt yield, below, we see the same 12.31% target.
Bottom line strategy: Intervention in any market is a problem for technical analysts and technical analysis. The price action suggests one conclusion but government intervention thwarts it. Without government intervention, the path is for higher interest rates in the months ahead.
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Does the Fed end up fighting inflation? Or does it pour kerosene on the fire in order to prevent some kind of economic armageddon?
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