US Treasury Bonds - higher yields ahead?

by Tim Straiton
Saturday 29th August 2020

The US 30 year bond yield has been in a 40 year bear market. In 1981 the yield stood at 15.2% and since then has drifted downwards, reaching levels under 1% in March 2020. Although the financial markets have been indoctrinated into believing that interest rates can only stay at unrealistic and depressed levels until the end of time, it may be wise to consider what events could trigger a reversal of the current trend.

The falling trendline resistance originating from November 2018 comes in at 1.72. A break here would open upside targets toward 2.60% being the Fibonacci 61.8% upward retracement over the entire 3.40 - 1.17 range. The weekly Bollinger bandwidth is contracting to levels that could lead to a sudden breakout.

One should not forget that China and Japan are the largest holders of US treasuries. Should the US - Chinese trade war escalate, US bond liquidation on the part of the Chinese could have devastating consequences on the Global bond and equity markets. An already weakening US dollar could also fuel the panic to unload US investments. We live in uncertain times and face situations that we never before have had to deal with. It would therefore be wise to have an open mind and be prepared for all possible outcomes.


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