US Treasury bonds are going to move down in price. We have heard this for the last 2 years now, yet as the Fed has started to raise interest rates they have not moved all that much lower. Their prices are off of the highs, but still at the same levels they were in late 2012. No one was talking about the end of QE or balance sheet reduction at that point. The first rate hike did not happen until December 2015. So why has there been so little movement even after the Fed has raised rates 4 times? Answering the ‘why’ is not how we make money, so instead lets focus on the price action and what it is telling us.
The chart below shows the last 10 months of bond prices (NASDAQ:TLT). It does show a sell off into the December 2016 rate hike, but since then a bottom has formed. And after the March rate hike prices actually started to move higher off of that bottom. The broke out of the bottoming channel in May as it became apparent that prices had morphed into a rising channel. That continued until the June rate hike. Following that move in rates bond prices pulled back again.
Since the Pull back ended in early July bond prices have rebounded again. Not quite moving in the same channel higher, but a parallel channel. The pullback held at a higher low and from a short term perspective prices have been making a series of higher highs and higher lows as they rise again. With momentum in the bullish zone and the Bollinger Bands® pointing higher, this does not need to end anytime soon. A new channel higher.
Many will worry about the equity market and how long it can continue higher with rising bond prices. The fact is that bonds and equities move higher together quite often. Ride the bond channel for now. If you want to worry about equities then look at the equity price action. Facts over gossip.
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