30 Year T-Bonds - Intermediate term trend change imminent?

[EB]

I don't think I posted this chart here before, but I created it on February 9, 2011 and it has proved remarkably prescient. It might be partly luck, but I post it here for anyone interested in interest rates.

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Here is the original from February, which contains more history in the monthly:

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Implication for equities? Not sure, as I expect continued decoupling of yields with risk markets, as the US debt rating becomes more and more of an issue. Intermediate term implications for US Treasurys are bearish, however, assuming the cycle continues to hold. Once yields definitively break up through the downward trend channel, that marks the end of the three decade secular bull market in Treasurys (bear market in yields). It could be as soon as the end of 2011. Or, we might see another intermediate term zag downwards into H1 2012.

[adam ali]

Bob,

Can't quite tell - what's the timeframe for a complete cycle in the 30-yr? Looks like either 10 or 11 months.

[asomani]

Thanks for sharing this, Bob.

If long-term yields can start to go up from here, it will be bullish for the stock market. Until they turn around, it will be tough for the stock market to perform well, based on analysis I've seen of how the stock market performs after yields turn down from an already relatively low long-term level.

[nickola.pazderic]

EB--

From all that I've read, the Federal Reserve Bank basically controls interest rates. I've been waiting for bond prices to drop since last August. Despite all political discourse, it seems to me that the Fed has decided it is in the best interest of the economy to have low rates. We hear that foreign countries will not buy US bonds at inflated prices, but these threats have not materialized-- so far as I can tell.

At a meeting in Seattle, Tom Sosnoff-- founder of ToS-- asked our group: Does anyone think bond prices can go higher? I was one of the few people who raised his hand, and so far I am right.

Call me a guru.. ha ha. In fact, your chart, while magnificent, is nearly incomprehensible to me.

[Andrei]

Bob, thank you for this update.

Is there any specific reason why cycle curves fit so well to 30 Year T-Bonds? Or the answer would be: "Because they are cycles!"

Thanks.

[asomani]

Interestingly, when I look at the candle and volume for TLT today (ETF for 20-yr. govt. bonds), it seems to me to be the type of formation you typically see at a climax top. I remember seeing a formation like this in silver (SLV or perhaps the SI futures, or perhaps both...can't remember) early in the year when it peaked just below $50. I believe that is when Gil Morales exited silver, actually.

More info on climax tops: http://www.tradejuice.com/technical-analysis/CPA-climax-top-AI.html

[EB]

@adam ali: yes, 10 months.

@asomani: over the last few years, lower yields have indeed been concurrent with headwinds in equities. Generally, this is from the flight to quality effect, as derisking has led to inflows into Treasurys. My statement about decoupling is that long term Treasurys are slowly losing this flight to quality status. Similar to how gold now trades on its own (not selling off with risk markets), I expect Treasury correlations that have held to break. Also, the transition of a secular (decade or longer) trend is a big deal and takes years to play out. Gold made its secular turn nearly a decade ago and has less resistance. Once it is clear that LT Treasurys have transition into a secular bear (secular bull in yields) we will see some incredible moves in interest rates.

@Nickola: The Fed influences the yield curve to a degree, and they have the most influence over the short term end. However, in line with my comments above, once the bond vigilantes sense the secular trend is changing, there is not much the Fed can do and we will have double digit rates across the curve.

@andrei: Cycles are not my forte. I simply look to see what works for a given market.

[nickola.pazderic]

EB--

My sense of humor during these times is a little whacked.

In any case, I have seen reports of negative interest rates on Zero Hedge. (As one commentor put it: "paying the government to keep their money out of stocks").

I also know I've tried to short treasuries all year with little success.

As an investor, I've gone flat all risk assets. Unfortunately, due to regulations in a state retirement account I manage, I'm still long bonds. I'd rather be flat even bonds, but I must wait a few days before I can return to cash (i.e., a money market-- another riskier asset in light of present liquidity problems-- sigh). As I wait, I am left smoking hopium/ or cheering on the bonds in their parabolic move. Since I still think bond prices must come down, I depend on luck to keep the account positive.

Your charts are excellent, and I am spurred to wonder whether or not Trade Station is a better provider than Thinkorswim.

Nick