Rising oil prices and interest rates put long-term bonds and gold under pressure

This week's review: US-Iran hostilities have escalated again, the Fed rate cycle has heated up due to weak employment data, the UK gilt cycle and the Russia-Ukraine war are also heating up. These events, via interest rates and oil prices, have left the clearest marks on bonds, energy, and gold. ETF Radar's judgments shifted accordingly this week.

Specifically, four things:

• US-Iran hostilities: The US deployed additional Patriot air-defense systems to Saudi Arabia and Qatar, and Trump warned that if the assassination of a FlyDubai pilot is linked to Iran, he will "strike back hard."
• Fed rate cycle: US private-sector payrolls added only 46,000, government employment decreased by 17,000, and the market is re-evaluating the pace of rate cuts.
• UK gilt cycle: UK house price growth slowed to 0.8%, suppliers warned the UK faces the toughest energy winter since 2022, and there has been some capital flow from France into the UK.
• Russia-Ukraine war: Putin promised Western firms could reclaim assets seized by Russia, while the US added Russia's A7 network to a new round of sanctions.

Key changes this week

• Directional reversals
• QQQ: shifted from mildly positive to mildly negative, confidence 0.62.
• VTI: likewise shifted from mildly positive to mildly negative, confidence 0.62.
• TLH: neutral to mildly negative, confidence 0.66.
• EWC: neutral to mildly negative, confidence 0.62.
• JNK: neutral to mildly negative, confidence 0.56.
• FXI: shifted to mildly negative, confidence 0.50.
• WOOD: neutral to mildly positive, confidence 0.70.
• PICK: shifted to mildly positive, confidence 0.62.
• Confidence strengthened: UNG tilted negative, rising from 0.50 to 0.68. ITA tilted negative, rising from 0.30 to 0.46.
• Confidence weakened: VGLT tilted negative, falling sharply from 0.50 to 0.20. SPY tilted negative, falling from 0.64 to 0.45.
• Newly entered tradable status: BNDX bearish, BNO and VDE bullish, GLD bearish.
• One divergence: QQQ actually rose 4.45% over the past month, yet the model turned bearish; this will be explained later.

Main story 1: Rates rise, long-duration bonds suffer the most

The core of this week's bond market story is the long end. The US 10-year Treasury yield is already at 5.24%, and the MOVE index rose to 108.13. This index can be understood as the bond market's "panic thermometer"—the higher the value, the more bond prices are prone to large swings. The high-yield credit spread is 3.24%, widening 44 basis points last week and 59 basis points over the past month. The spread is the extra interest that higher-risk companies pay compared with the government. A widening spread indicates greater market concern about these companies' ability to repay.

The transmission chain is not complicated. War pushes up oil prices and uncertainty, the long-end yield follows, holders of long-duration bonds demand higher compensation, and existing bond prices fall. This week’s weak nonfarm payrolls provided a bit of easing on rate-cut expectations, so two forces pulled against each other.

First look at BNDX, the international bond ETF. It fell 0.17% last week and 1.14% over the past month. ETF Radar's 1–3 month view is tilted negative, with a relatively strong signal—this is the top theme this week. MOVE rose from about 101.8 in the previous edition to 108.13, and the 10-year yield continued to climb from about 5.18%. These readings point to growing bond market volatility.

Next TLH, a long-term US Treasury ETF. It fell 1.77% last week and 4.94% over the past month. Looking forward, ETF Radar is also tilted negative, with a generally strong signal. The model uses three inputs: since September 14 net redemptions equal about 2.06% of assets; put implied volatility in the options market sits at historical highs, indicating the market is paying more for downside insurance; short positions increased 64.9% from the prior period. The model also notes prices have already fallen substantially, so a technical rebound could occur short term.

VGLT is another long-duration Treasury ETF, and the situation is more nuanced. It fell 2.08% last week and 5.28% over the past month. The model remains tilted negative, but the signal is shallow, and confidence dropped from 0.50 to 0.20. The reason is that four-week Fed net liquidity rose by about $24 billion, and this period's nonfarm payrolls were clearly weaker than expected—both of which weaken the case for further long-bond declines. In short, prices have already fallen, but the evidence for continued declines is offsetting.

AGG is a broad bond ETF; it fell 0.91% last week. The model is tilted negative with confidence 0.64. It aligns directionally with the ETFs above and belongs to the same main theme.

This theme also includes credit products. LQD, an investment-grade corporate bond ETF, fell 1.34% last week; the model newly turned tilted negative with confidence 0.48 (a moderate signal). JNK, a high-yield bond ETF, is tilted negative with a moderate signal, based on widening spreads and rising long-end yields, though shorts are already crowded. BKLN, a leveraged loan ETF, fell only 0.24% last week; the model is tilted negative with a generally strong-ish signal, based on similar upward pressure on credit spreads.

On the equity side, QQQ and VTI both turned tilted negative. QQQ's basis is Nasdaq futures speculative net shorts of about 24,700 contracts and net redemptions of about $8.1 billion since September 14. VTI's basis is extreme net shorts in S&P futures, about 372,000 to 375,000 contracts. One point to clarify: QQQ actually rose 4.45% over the past month, and SOXX rose 17.26% over the past month—prices are acting against the model. The model focuses on positioning and funding pressure, and this divergence is worth monitoring. SPY fell 0.22% last week; the model is tilted negative but the signal is moderate, confidence 0.45. VOO newly entered the view this week, tilted positive with relatively consistent signals, the rationale being cooler-than-expected nonfarm payrolls marginally eased liquidity. Even among US large-cap ETFs, conclusions differ, indicating mixed evidence and that blanket statements are inappropriate.

Main story 2: Oil prices, sanctions, and natural gas

Another main theme this week is energy. Oil prices strengthened significantly last week. BNO, an oil ETF, rose 5.78% last week and 12.88% over the past month. ETF Radar's 1–3 month view is tilted positive, signals fairly consistent, confidence 0.74; it is a newly tradable judgment this week.

The transmission chain is as follows. Congress passed sanctions targeting the 'shadow fleet'—the tankers that evade sanctions and clandestinely carry oil. Restricting these tankers tightened near-term physical crude availability, and the futures market showed near-month prices higher than far-month prices. This structure is called a 'spot premium.' ETFs holding near-month contracts earn a bit more when rolling. Iran-related hostilities and the US adding Russia's A7 network to sanctions also push in the same direction.

VDE is a US energy equities ETF. It rose 1.28% last week but is still down 3.42% over the past month. ETF Radar is tilted positive with fairly consistent signals, confidence 0.72. To be honest: price is still down over the past month, so the model judgment does not align with the one-month price move. The model's rationale is that sanctions reduce bypassed oil flows, tightening prompt supply and benefiting energy-stock earnings. Whether stock prices catch up to the oil move is something to watch.

UNG is the natural gas ETF and moves in the opposite direction. It fell 5.93% last week and was essentially flat over the past month, down 0.19%. Looking forward, the model is tilted negative with a relatively strong signal, confidence rising to 0.68. Supporting reads include: speculative net shorts widened to 132,800 contracts; the natural gas futures curve shows far months priced higher than near months, with an annualized difference of about 4.17%, meaning holders of near-month contracts face roll loss; and since September 14 funds have net redeemed about $42 million. Note UNG rose 3.05% on Friday alone, a short-term bounce, but this does not change the three readings above.

One small detail: in an interview Trump attributed the oil price pullback to de-escalation in hostilities; the model treats such remarks as narrative expectations, not as quantifiable shocks.

Main story 3: Gold under pressure, Canada weak

Gold had the worst performance last week. GLD fell 3.37% last week and 7.33% over the past month. GDX, a gold-miner ETF, fell 5.48% last week and 13.51% over the past month.

ETF Radar's 1–3 month view is tilted negative, signals fairly consistent, confidence between 0.66 and 0.72. The transmission is straightforward: the 10-year real yield is 2.93%, up about 49 basis points over the past 20 days. The real yield—interest after subtracting inflation—is higher, which penalizes non-yielding gold. Another read is from the CFTC positioning report: gold net longs are 120,300 contracts, down for four consecutive reports, from 135,000 to current levels. The one-month price move is consistent with the model's direction.

The Canada theme was triggered by this week's reports on 'brain drain and household deficits.' Media reported about 25,000 people moved out in Q2, while household debt-servicing pressure rose. FXC, a Canadian-dollar ETF, fell 0.78% last week and 3.28% over the past month. The model is tilted negative with a generally strong signal, confidence 0.65. The basis is CFTC Canadian-dollar futures net shorts of about 46,900 contracts and a US-Canada 10-year yield spread of about 1.62 percentage points. EWC, a Canadian equity ETF, fell 1.46% last week and 6.00% over the past month. The model is tilted negative with a moderate signal, confidence 0.62. The rationale is that weaker domestic demand and credit tightening could depress corporate profits, and short holdings increased 39.5% from the prior period.

Next week watchlist

• Whether the 10-year US Treasury yield can hold above 5.3% and whether the MOVE index stays above 108. These two items will determine whether ETF Radar's bearish views on BNDX and TLH strengthen or weaken.
• The actual enforcement intensity of the shadow fleet sanctions and any further moves in Iran. These are key for BNO and VDE.
• Changes in Fed net liquidity and the high-yield spread (currently 3.24%), which will affect VGLT, JNK, and QQQ. The input data does not provide specific publication dates; this is just a watchlist of readings.

Closing

The main themes this week can be summarized as: war and sanctions pushed up oil prices and yields, pressuring long-duration bonds, credit, and gold; energy was relatively strong; evidence on US large-cap equities was mixed and pulled in different directions. ETF Radar will continue to track these readings, especially the price-model divergences in QQQ and VDE.

A reminder: the above are system quantitative model directional forecasts for the general market and do not constitute personalized investment advice; consult a licensed investment advisor before investing.