The scene from Monty Python and the Holy Grail reminds me of the US Treasury Bond market. So many are calling it dead but it keeps rising back up. Ending Quantitative Easing couldn’t kill it. Raising short term rates couldn’t kill it. Reducing the Fed balance sheet couldn’t kill it. It is as if you will need to beat it with a club to kill it. The price action starts lower on Treasury Bonds with every speech that is hawkish. But every time it finds support and is bought. So will bonds ever die?
The short answer is maybe. The better answer is definitely not yet. Before we look at the price action there is one point to be made that will bring you some clarity. Not all Treasuries are the same. The Fed reducing their balance sheet and raising interest rates has the biggest impact on short term interest rates, Treasury Bills and Notes. Treasury Bonds care about short term rates but are more effected by inflation expectations and long term holder demand. Raising rates does not have to raise Bond rates. Now onto the price action.
The chart above shows the price in the Treasury Bond ETF (NASDAQ:TLT). It fell from a peak in July last year and found support following the election last fall. That support turned into consolidation in a channel that lasted until April. A failed break out to the upside exposed a shift from consolidation to a new uptrend with the first higher high. It was knocked back to support in May at a higher low near the 50 day SMA. Reversing it made a higher high in June before pulling back again. Another higher low and consolidation at the 200 day SMA and then a push to another higher high at the start of September. Last week saw the pullback from that continue, but Monday it reversed off of the 200 day SMA again at a higher low.
What does this all mean? Higher highs and higher lows indicate a rising trend in Bond prices. They are not dying. Not yet at least. Momentum also is pointing higher with the RSI rising and the MACD about to cross up. There is not any great strength in the price move. It has only retraced 38.2% of the drop from last July so far and is fluttering around it. The short term bias remains to the upside though until Treasuries make a move down to a lower low.
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