One of the consensus themes for 2014 was the expectation that interest rates would continue to climb against the backdrop of an improving global economy. As you can see from the 10 Barron’s strategists forecasts for 2014, only one of the ten strategists saw the U.S. 10-Year yield remaining below 3%:
As often happens, the consensus view has proven to be exactly wrong thus far in 2014. However, with long rates down 50 basis points since New Year’s Eve and sentiment suddenly turning quite optimistic regarding a further rally in bonds, it might be to time to fade the crowd once again.
30-Year Treasury yields have declined back to an area of major support/resistance from which it is quite reasonable to expect a bounce in rates:
In addition, after holding a sizable net long position in Treasury bond futures for much of 2013 the Commercials have moved to a large short position in recent months:
From our vantage point this is certainly not the time to be betting on lower rates. In fact, if it turns out that the 2012 low in yields marked the end of the 30 year long bond bull market. The next leg higher in yields may be about to begin very soon.