Treasury Bonds Won’t Give Up

The saying goes “Quitters never win and winners never quit”. A show of attitude, but also a firm statement that to succeed you need to try and try again. It is an admirable way to address most situations. But can it apply to inanimate objects?

We do tend to project human qualities onto inanimate objects when trying to explain situations. And in this case, applying the statement above to the Bond market is one where it seems to fit. Sure, I know that Treasury Bonds are not alive. But I do know that Treasury Bond investors are what give them life. And that makes it quite appropriate to talk about Bonds not giving up.

The chart above shows the full story. The FOMC raised rates in December and Bonds started to head lower. After breaking down through support at the end of January, Treasury Bonds found a bottom in February and bounced. They held up well after the March Rate hike, eventually dropping back to that support level in May. They bounced again there and made a marginally higher high into the June rate hike before falling back again.

The one continuing theme throughout this time has been a range bound Treasury Bond market. Rising rates, and flat Bonds. This is why Bonds get the reputation of not giving up. But what is really happening? Bonds are reacting to the path of interest rate increases. By holding and not continuing lower, Bonds are telling the FOMC and the market that from their perspective the proposed rate increase scheduled is appropriate. That they are comfortable with the pace.