Why isn't technical analysis used for bonds?

Question

According to the Wikipedia article on technical analysis:

Technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.

In most markets, past market data for bonds is readily available. In the USA, bond price and volume information collected by FINRA's TRACE facility is widely distributed to data vendors and is viewable by retail investors on FINRA's Market Data Center website. Consider the 10+ year price chart for PepsiCo Inc 5.500% 2040-01-15 callable bond (CUSIP: 713448BP2):

The bond's price chart allows the use of technical analysis by overlaying trend lines, moving averages, support and resistance lines on the chart. And yet I only hear about the use of technical analysis for stocks, futures, commodities and currencies (forex). There aren't many articles or books about technical analysis for bonds.

Why isn't technical analysis commonly used for bonds, even though all the data required for technical analysis is available? Is it because technical analysis doesn't "work" for bonds as well as it does for other kinds of securities? Is there something fundamentally different about bonds that makes technical analysis ineffective?

Answer 1

And yet I only hear about the use of technical analysis for stocks, futures, commodities and currencies (forex).

Perhaps you don't know any bond traders who use technical analysis, hence you're not hearing about it?

There aren't many articles or books about technical analysis for bonds.

Technical analysis is about analyzing price and volume data. Therefore, it's applicable to any security for the analyst who is a believer.

Why isn't technical analysis commonly used for bonds, even though all the data required for technical analysis is available?

A quick google turned up multiple sites that provide technical analysis of bonds. The first one one the list provided a fair number of technical indicator values for the 10 year bond today:

Pivot Points:

• Classic

• Fibonacci

• Camarilla

• Woodie's

• DeMark's

Technical Indicators:

• RSI(14)

• STOCH(9,6)

• STOCHRSI(14)

• MACD(12,26)

• ADX(14)

• Williams %R

• CCI(14)

• ATR(14)

• Highs/Lows(14)

• Ultimate Oscillator

• ROC

Answer 2

Technical analysis with bonds can be difficult with bonds because of the inverse relationship between price and yield. As an example, an investor might be quite happy with the price of a bond staying exactly where it is when they are collecting a 7.5 monthly yield. In fact, the price can still go down a bit (and it probably will), and the yield may still compensate. This would really not be able to be capitalized in a trade. Many investors are also willing to hold a bond to maturity, at which time the bond dissolves and cash returned to investors. This is also difficult to reflect in the price since this is an event which essentially happens one day in the distant future.

The call option in your example also affects the price, however that can be complex since a bond can be called over a long period of time, and that is difficult to reflect in the price as well.

All these things are somewhat reflected in the price, and along with interest rates and fed policy can create volatility in longer term bonds, which CAN create short term trading opportunities. However bonds in the long run are considered safe investment and things tend to revert to the mean.