The consensus view is the FED will continue on their path to raise interest rates this year thereby creating a less than desirable environment for bondholders. We know they only control rates on the short end of the curve so while it is a logical conclusion, it is not a slam dunk long term bond rates will rise in tandem if they continue to increase short term rates. This combined with the fact we have been told any future action will be “data dependent” investors must keep an open mind to the possibility of the long bonds rising in spite of the known “given” fundamentals.
Looking at the weekly chart of the 20 year US Treasury bond below you can see we have formed a symmetrical triangle with price coiling tightly, building energy as it approaches its apex. The $64k question is an investor wants to know the answer to is which way? Triangles are notoriously fickle and provide me little confidence on which direction price will eventually go once it breaks out other than you give a slight edge to the direction of the prior trend (which in this case is up). Either way it breaks, the projected target from the triangle is a move more than 10% which is pretty healthy considering this is a bond and not a stock.
My $02 (which should not be taken as investment advice) is I am a contrarian here. I think the weakness in stocks, the slowdown in recently released leading economic indicators and ongoing foreign currency devaluations will be ample fundamental reasoning to offset any FED action. I think we see long bond prices higher months from now. But if I am wrong and the FED wins you can bet my investment dollar will be on the direction of the confirmed break out of this triangle not on any fundamental reasoning. When it comes to money it’s ok to be wrong. What isn’t, is to stay that way.