A Journey About To Begin In Bonds

Every journey starts somewhere. It is the result of a plan or just a thought that is acted upon impulsively. And every one of them takes unexpected twists and turns along the way. Whether it is the journey our country is taking under a polarizing president or the journey you take through your life, it will be filled with exciting moments, panicked ones and everything in between. You never know what will be next.

So it is always fascinating to me that, as we all experience life this way, many in the public markets seem to believe that they know what is about to happen. They fall into many categories. The perma-bears who have been certain that policy decisions will lead to another market crash…… one day. The gold bugs who see every blip in markets as a reason to buy Gold. The macro traders who have predicted 12 of the last 2 global market events. And the self-predicating bond kings who have now declared the bull market in Bonds over.

Some will be right. With enough opinions it is bound to happen. And if they are vocal enough they will be embraced as genius and likely start to believe their own ability is special. It happens every day. So why after all this would I think that I know that a journey is about to begin in Bonds? Ah, nuance, I see a journey because of the price action in Bonds, but I do not know where it will lead.

The chart above of US Treasury Bond prices shows the monthly action since 1997. It looks pretty similar if you go back another 10 years to 1987. Just a rising channel of prices. So how do I know a journey is about to begin? With February’s candle added to the picture the price is right at the rising trend support line that has been in place for 30 years or more. There are three things that can happen from here.

Prices can rise again, like they have done every other time they have hit the bottom of the channel. The journey then might be one back to the top of the channel. Not many are looking for this path. The second is that prices can just move sideways, marking time. This would eventually bring them through the channel and trigger a debate about whether a bear market has started or just a pause. The third path is a continuation of the downward path that has been in place since mid 2017. This is the bear market path that those bond kings have declared as already underway. I do not know which path it will take but I do know it will be at least one of them.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.