Are The Bond Vigilantes Back? Part Deux

Sep. 28, 2022 10:22 PM ETTLT, TLH, PLW, EDV, SPTL, ZROZ, VGLT, LGOV, SCHQ, TFJL, TBJL, GOVZ, TBT, TMV, IEF, SHY, TBF, TMF, PST, TTT, IEI, BIL, TYO, UBT, UST, UTWO, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, GSY, TYD, EGF, VUSTX, FIBR, GBIL, SGOV, VLGSX, PRULX, VEDTX, FBLTX, PEDIX9 Comments
Jesse Felder profile picture
Jesse Felder
4.29K Followers

Summary

  • It’s clear to see that the 30-year yield has decisively broken out of its downtrend channel.
  • The bond vigilantes have finally been woken from their long slumber by rapidly rising inflation.
  • It appears the bond vigilantes may throw a wrench in the Fed’s plans for balance sheet “normalization.”.

The word bonds on wooden cubes with office desktop. Business finance stock exchange

cagkansayin

Back in March, I wrote, “The long-term chart of the 30-year treasury yield may now be the most important chart in the world. For the past 30 years or so, the yield on the long bond has formed a fairly neat channel that has only been violated relatively briefly at times.” Below is an updated version of that chart and it’s clear to see that the 30-year yield has decisively broken out of its downtrend channel. This suggests that the bond vigilantes have finally been woken from their long slumber by rapidly rising inflation and a Federal Reserve that has fallen woefully behind the curve.

Chart: 30-year treasury yield

Fundamental indicators, however, like the copper-to-gold ratio suggest interest rates should actually be falling, not rising. And from a technical standpoint, the 30-year yield has now completed the projected target from its head and shoulders bottom pattern and is running into horizontal resistance that dates back to 2013 so the rise in rates may now be due for a rest. Longer-term, however, the breakout sends a “loud, clear signal” that the trend in rates has reversed. As a result, it appears the bond vigilantes may throw a wrench in the Fed’s plans for balance sheet “normalization” which could further challenge the central bank’s waning credibility.


Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Jesse Felder profile picture
4.29K Followers
Jesse has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report.

Additional disclosure: © 2017 FELDER INVESTMENT RESEARCH, LLC.

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