Since mid-September 2014, the market theme appears to be: If market uncertainty keeps rising and inflation keeps falling, buy more bonds.

The 10-year U.S. Treasury yield tumbled again today, down 3.03% to an intra-day low of 1.92%. The crude oil futures for delivery in February 15 [CLG15.NYM] on the New York Mercantile Exchange (NYMEX) also took a nosedive, more than 5%, to an intra-day low of U.S. $45.85 per barrel and took the U.S. equity markets along with it. 

The relationship between the equity markets and crude oil prices follows a general rule that crude oil prices move in the same direction as inflation, measured by the All Items Consumer Price Index or CPI-U. As market uncertainty rises and crude oil prices decline, investors sell equities and buy bonds as a “Flight To Quality”, or a risk-off trade. 

Foreign investors benefit from currency translation profits as the U.S. dollar appreciates against their currencies. According to the U.S. Department of the Treasury, China has bought U.S. $184 billion in longer-dated Treasuries last year. Japan’s $1.2 trillion public pension fund, the world’s largest Government Pension Investment Fund, said in October that it plans to reduce its domestic bond holdings and raise their overseas bond allocation to 15% from 11%, meaning more demand for U.S. Treasuries.

Jeffrey Gundlach, CEO of DoubleLine Capital, a fixed income investment management firm with over U.S. $60 billion in assets, told Barron’s last week that the 10-year Treasury yield might break its record low of 1.38%, citing declining oil prices which help bonds because of their deflationary impact. 

The 10-year U.S. Treasury yield began a major downtrend slide in April 2014, as a Death Cross chart pattern emerged. Technically, a Death Cross occurs when the 50-day moving average falls below the 200-day moving average. A Death Cross is sometimes used as a sell signal because it is interpreted as a warning sign that a sharp movement downward in price is around the corner. 

The 10-year U.S. Treasury yield broke a key technical resistance of 2.04%, or 61.8% Fibonacci retracement last week. The next supports are 1.82%, 1.72% and 1.58%. Although the 10-year yield isn’t even near the 2012 Greek government-debt crisis level, meaning below 1.58%, one may like to consider a risk-off strategy going into March or April this year.