Bonds are way oversold at this point, market watcher says. Here’s what that means

Bond yields hit the accelerator again this week with the 10-year Treasury hitting its highest levels since mid-2011.

Bond prices, which move inversely to yields, are now looking oversold, said Larry McDonald, editor of the Bear Traps Report. He told CNBC's "Trading Nation" on Thursday what this could mean for bond markets.

  • The U.S. 10-year yield is much higher than in Japan and Germany, but a global shortage of dollars has increased the cost of hedging these bonds.
  • Even though U.S. yields are relatively high, they're less competitive to Treasurys overseas because of those global hedging costs.
  • This is putting dramatic selling pressure on the 10-year and starting to upset the market.
  • The U.S. 10-year Treasury yield should hit 4 percent this year.
  • The spot between a 3.1 percent and 3.15 percent yield offers a good buying opportunity on the TLT long bond ETF.

    Bottom line: Non-U.S. bonds look more competitive and will continue to pressure U.S. 10-year bonds.

    Correction: This story was revised because the strategist says he meant to recommend the TLT long bond ETF as a good buying opportunity.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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