25 Year Bull Market Over for Bonds?

January 11, 2018 3:11PM CST

Some high profile names chimed in on Treasury bond weakness yesterday as the front month 30-year futures had a two day washout from the 152 handle to the low 149 handle.  Bill Gross went as far to say the 25 year bond bull market was done, and it had entered a bear market.  Several factors have been at play since July of 2016 when 30-year futures hit their highs, and yields their lows.  Since then yields have climbed upward from a low of 2.11 percent to yesterday’s high in the 2.922 percent area.  According to Jeffery Gundlach a rise above 3.22 percent on the 30-year “would end the bull market for good.”

Several factors are at play, but the main ones have been in the news for months now, and remain relevant.  The Fed has entered a rate hike phase, and it is expected that three more hikes will take place this year.  The Fed has also begun to unwind their balance sheet, and central banks worldwide have either begun tapering or intend to taper bond and asset purchases. Inflation is looming.  Although inflation hasn’t been much of a factor, one of the main jobs of the Fed is to stay ahead of inflation and keep it near the target rate, which stands at about 2% a year. 

Technically, I still see the 30-year futures in a range it has been pinned in since Nov 2016 between the 147 handle on the bottom and 157 on the top.  The range has constricted over the last 3-4 months between the 149-150 handle and 155.  In the last several articles I have called for short exposure between 154-155.  That has been a correct assessment.  As of yesterday we took out the bottom of the recent range, getting as low as 149’03 on the front month March 30-year contract.  The previous March contract low came in at 149’07 on 10/27.  Technicians, including those close to Bill Gross, have noted that the 5 and 10 year bull trend lines have been broken on this latest sell off.  That bodes long-term ill for the bond market, but I think it may be a tad early to say the 25 year bull run is done for good.  However, the downside is definitely the path of least resistance, and there are trades to be made to take advantage of what may be one of the best opportunities of 2018.  Feel free to contact me to talk about those trades.

30-Year Treasury Bonds Monthly Chart


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