I like to chart the ratio of the iShares 20+ Year Treasury Bond (TLT) vs. iShares iBoxx $ High Yield Corporate Bond (HYG). Generally speaking, when the ratio is declining (HYG outperforming TLT), then sentiment is risk on, as investors seek risk for greater return. When the ratio is ascending (TLT outperforming HYG), then sentiment is risk off, as investors seek lower risk investments.
This ratio has formed a symmetrical triangle for the past five years, and just broke out on the weekly chart this past week above falling resistance, indicating a bias away from risk. It’s a bit early to tell if this is a false breakout or the beginning of a measured move higher, but the move is noteworthy and warrants close monitoring.
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Paperback: 128 pages
Author: Shelley Allen, M.A.Ed.
Publisher: Fibonacci Inc.; 1st edition (2019)