Data Driven

Since late last year, the bond market has gone from expecting 2-3 Fed rate increases for 2019, to now expecting 3-4 rate cuts. How quickly things changed. Like most every other big change, the experts failed to see it coming and the majority got it wrong. Accurately and consistently forecasting the future is impossible and why one should only pay attention to price. It’s never wrong.

As you can see in the 20-year treasury bond ETF, TLT below, its price has risen ~20% from last October’s support test to last week’s prior-high resistance challenge. That’s a big move. A 20% move in bonds usually takes 3-5 years, not 7 months. As of now this move is nothing more than a reflection in the market’s expectation of those rate cuts. It should come as no surprise the places TLT found support/resistance (hint …. look left). But now that last week’s attempt to move above was rejected, as investors, we all want to know what’s in store for the future. 

san ramon CFP fiduciary investment advisor TLT 6-24-19.png

The cop-out (but honest) answer is no one knows, especially me. But I do know that as a minimum I would expect the bond rally to cool off here and consolidate before they show their hand. Continued weakening in global economic indicators would likely push bonds well beyond the upside breakout level.  A trade agreement and economic expansion would bring a high probability they retest the green support line once again. The problem with trying to determine the highest probability next move is the fact treasury (sovereign) bonds are driven less by the market and more by Central Bank action. And unless you are on their email list or can tweet your frustration with their leader and threaten firing him, you should be prepared for anything and in the words of the FED, be “data driven”.