Investors Initiate and Rebalance Their Positions During the First Week of 2025

The first week of trading is always significant, as many investors begin initiating and rebalancing their positions for the year. Gold continued its upward movement, while UK bonds sold off, breaking below levels seen during the UK bond crisis of 2022, which led to the resignation of then-Prime Minister Liz Truss. EU and US bonds also struggled, with all of them declining during the first week, pushing yields—or borrowing costs—higher. Meanwhile, the Nasdaq followed an uneven path.  

Source: TradingView

What Is on my Radar?

This opening week has highlighted that the year's market focus will likely center on the direction of bonds and yields, or interest rates. Bonds and yields are expected to serve as key leading indicators for the rest of the markets in 2025.

US and UK bonds peaked in January 2020, at the start of the pandemic, and have yet to recover. US bonds have declined by 44%, while UK bonds have dropped by 36%. If investors continue to put pressure on bond markets, yields are likely to trend higher.

The Fed sets the Fed Funds Rate, whereas investors determine yield prices. Historically both the Fed Funds Rate and yields tend to move in tandem. Therefore, to strike a balance, the central bank constantly refers to the state of the yields market when making decisions. While many hope for more rate cuts, the current conditions in the bond market may pose challenges.

The following are potential reasons why investors remain bearish on the bond markets:

• Rising interest rates
• Inflation fears
• Increased borrowing costs
• Economic uncertainty
• High debt levels and fiscal policy concerns
• Credit risk perception
• Global competition for yield

How Will They Affect the Rest of the Markets?

If bonds continue to trend lower, borrowing costs will likely increase. As a result, the stock market may face some headwinds in 2025, as discussed in our video from July last year.

At that time, we analysed the Nasdaq potentially reaching its upper band, and now we can see how it has reacted. December closed with an inverted hammer, highlighting the market's response. 

Source: TradingView

Trading and Hedging into the Bond Markets

With bonds appearing to be under pressure, we can manage market risks directly within the bond market. Here, I have plotted the parallel channel I identified on the 30-year bond. This serves as a guideline for decision-making when the bond approaches its upper or lower bands.

Source: TradingView

I am closely monitoring this new round of bond selling during the first week of trading. While it has since recovered slightly, any break below its new low could drive yields higher. Keep an eye out for potential contagion effects across bonds and other markets. With CMC's product offerings, I see opportunities ahead while simultaneously managing the associated risks.

For more insights, check out this video.

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