The US 30 year long bond peaked in July of last year and the combination of FED threats of multiple (4) interest rate increases and the Trump pro-growth election agenda had the effect of a proverbial “rug pull” out from under US bond prices. In 9 months the T-bond lost 17% (a huge amount for a so called “safe” investment) and shocked many investors as losses piled up.
It seems like political reality has finally set in, and the expectations for a FED rate increase next month is now down to just above 4%. Combine that with the fact that smart money (commercial interest) piled into bonds and are now at multi-year highs in their Treasury bond holdings provides all the reasons why we see bond prices bottoming, reversing course and moving higher. Price broke out of a double bottom pattern earlier this week and was precluded by an oversold divergent low, a high probability “buy-me” signal. The pattern will be confirmed by a hold above the red horizontal breakout level.
If this pattern plays out, it projects to a rally up to the very important support/resistance zone marked T1. Coincidently (and should not come as a surprise) it comes at a time that retail bond investors turned overly bearish (a theme we see repeated over and over in investing – retail investors being on the wrong side of the trade). As always after a major correction, investors patience will be tested as only time will tell if this reversal goes on to eventually form a lower high or instead on to make new highs. Until that is determined, it appears as if the market is giving the “all clear” signal to be long US T-bonds and because the institutions are buying again, at the same time their appetite for equities is weakening