Bond Market Bear Markets

by: Bespoke Investment Group

After a 71.35% rally over 4,571 calendar days from 1/18/2000 to 7/24/2012, the US long bond future is quickly approaching bear market territory for the first time in more than 13 years.

By the standard definition, a bull market is a rally of 20%+ that was preceded by a decline of at least 20%, while a bear market is a decline of 20%+ that was preceded by a rally of at least 20%. Below is a table highlighting bull and bear markets for the long bond since 1980. As shown, there have been six bulls and five bears for the bond market since 1980, with the most recent bull run lasting by far the longest.

Since peaking on July 24th, 2012, the long bond is now down 14.76% over a 391-day period. To reach bear market territory, it would need to fall another 6.14% down to 122.3.

Below is a chart of the long bond future with bull and bear markets identified using green (bull markets) and red (bear markets) shaded lines. As you can see in the chart, the bear market threshold for the current decline is being intersected by the bottom of the long bond's bull market uptrend channel. Needless to say, this intersection will be a level that bond investors will be watching closely if it is reached.