Are We Headed For A Multi-Year Bear Market In Treasury Bonds?
Peter Brandt | Jul 30, 2013 01:11AM ET
[Note: I interchangebly refer to a rise in yields as being the equivilent of a decline in prices, and visa versa. Remember, rising yields equal declining prices.]
The quarterly graph of T-Bond futures shows that the 31-year bull market in T-Bond prices reached the upper boundary of a channel in late 2012. There is a good chance that the late 2012 high will not be seen again and that T-Bond prices have entered a major bear phase.
On the quarterly chart, a retest of the lower boundary around 124-00 to 125-00 could be expected. If the lower boundary of the channel is decisively penetrated, the target for T-Bond futures would be in the mid to high 90s.
The corresponding chart for 10-Year Notes is shown below.
It should be carefully noted that the bottom in T-Bond yields took the form of a H&S pattern. This is one of the most reliable chart configurations.
It should also be noted that the bottom in T-Bond futures prices in 1981 was accompanied by two classical chart patterns — the point being that major turns in yields and prices comply with classical charting principles. On a daily chart, the 1981 low in Bond futures was the head of a H&S bottom pattern, as shown below:
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This daily chart H&S bottom in Bond futures prices became the first major contact point of a 12-month symmetrical triangle bottom, as shown below:
A market I have loved trading over the years is Eurodollars (the interest rate, NOT the currency unit). Eurodollars trade at the inverse of rates — 100 equals 0% yield, 95 equals 5% yield, 90 equals 10% yield. Note the boom-to-bust nature of Euros on the monthly closing price chart below. See my May 14 post predicting a sharp decline in the deferred Eurodollar contracts Disclaimer page for my full disclaimer.
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