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A Temporary Relief Rally For T-Bond Prices

Clif Droke profile picture
Clif Droke


  • T-bond prices are ripe for a relief rally in March.
  • The long-term trend for bond prices remains down, however.
  • Strengthening U.S. economy makes bonds a poor long-term bet.

After commanding the financial Market Spotlight in the last 2 months, the rally in Treasury yields has cooled off in the last several weeks and has taken a backseat to equities. Investors are now focused on the impressive rebound in the tech sector and have turned their attention away from Treasuries for now. As we'll see here, though, we likely haven't seen the last of the bond market's spotlight-stealing ways. Although the T-bond market bear hasn't gone into hibernation, it's taking a respite and bond prices have some relief rally potential in the weeks ahead.

With 10-year treasury yields in an established uptrend since early 2016, the return of inflation has been an increasing worry for investors. The story of inflation's return has been enough of a concern for investors in recent months that it was enough to send the stock market into a tailspin in February. The accelerated rise in the 10-Year Treasury Note Yield Index (TNX) in the first two months of this year was the primary catalyst for the stock market's plunge.

10-Year Treasury Note Yield Index

Source: www.BigCharts.com

In just the last 3 weeks, however, investors have received a much-needed rest from the negative repercussions of runaway Treasury yields. The TNX has established a narrow sideways range (see above graph) lately which indicates a consolidation of its upward trend. The index did violate its 15-day moving average, however, which is a cause for concern in the immediate term (1-4 weeks). The longer-term trend in the Treasury yield index remains firmly intact, however, which means the bear market in bond prices isn't over yet. Accordingly, any declines from here in Treasury yields should be viewed as a counter-trend reaction against the prevailing long-term upward trend.

Confirming that the bear market in bond prices (and bull market in yields) hasn't reversed yet are two of

This article was written by

Clif Droke profile picture
Clif Droke is an equity research analyst and writer for Cabot Wealth Network. He has covered equities and commodities, specializing in gold, since 1997 and is the editor of the Cabot SX Gold & Metals Advisor.

Analyst’s Disclosure: I am/we are long HACK, FV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

Means rates will rise stocks will fall look at 1965-1982.
And investors will park their money in cash? Seeing what has happened in the last few years with the struggle to find a decent yield I don't think that is very likely. I think treasuries would become range-bound and investors will learn (et again) how to profit from building a bond ladder.

And then when the stagflation comes to an end treasury yields will go a looooong way down.

It is entirely possible that July 2016 marked the bottom in the secular bond bull market that began in 1981. That said, I think it is highly unlikely that the 10-year Treasury yield will shoot straight up. In the previous parallel interest rate cycle, the 10-year yield remained below 3% from 1935 through 1956 (22 years). The inflection point in that cycle was the low yield of 1.95% in 1941.

Assuming that interest rates have bottomed (in the secular decades-long cycle), the trend today for long-dated Treasury yields is sideways, not up . Meaning TLT is a swing trade at worst, and a buy today.

10-year Treasury Yield (1871-today)
- http://bit.ly/1dsUTns
Furthermore, consider this pattern of the inflection points of secular interest rate cycles and generational buying opportunities for stocks.

1921: rates began to fall; stocks at cyclical lows.
1941: rates began to rise; stocks at cyclical lows.
1981: rates began to fall; stocks at cyclical lows.
20??: rates will begin to rise; stocks today are near all-time highs.
Wrong the trend is up.
Great comment... Two questions though: Who is wrong, and which trend is up?

"The long-term trend for bond prices remains down, however."

I would make that bond YIELDS. But maybe that's just me.

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