RJO FuturesCast

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Interest Rates

Pressure Continues to Mount on the 30-yr T-bond Futures

Posted 01/29/2018 8:00AM CT | Tarik Husseini

Pressure continues to mount on the 30-yr bond futures.  For now, technical support is holding, but a classic consolidation phase is occurring.  If bonds break out to the downside of consolidation, they’ll have another leg lower.  The 3% yield mark seems to be the line in the sand.  It stands at 2.92%.  Should the 30-yr breach the 3% mark, it will be a psychological break in the 25 year bull market.

I believe the stars are aligning for a big move to the downside.  There are caveats, namely a correction in the stock market, or geopolitical tensions ratcheting up with Iran.  However, there are fundamental forces that bode very bearish in the long term for fixed income products. 

Keep an eye on the dollar.  US treasuries are dollar denominated, so the fall in the dollar has a big impact on foreign holders when the return is converted to the home currency.  The fall in the dollar can also spark commodity inflation.  Bond buyers will demand a higher yield if inflation takes hold.  The Fed may also act far more aggressively than anticipated if inflation ratchets up.  Central banks are slowly but surely ending quantitative easing, and reversing the era of easy money.

As noted in my last several articles, I have been long-term bearish bonds, and there is no change in that outlook.  Please feel free to contact me for ideas and strategies regarding bonds or any other commodities of interest.

T-Bond Mar ’18 Daily Chart

tbond_mar18_daily_chart

Tarik Husseini