% BONDS & INTEREST RATES

6 апр. 2023 г.

There's obviously lots of discussion about interest rates and where they are headed. Today, I'm going to look at long-term interest rates based on the well-known ETF: TLT . Long-term interest rates are useful as a guide for most people who get a home-loan or longer-dated loans and is usually less prone to manipulation (by Central Banks) than short-term rates.

Bond prices move inverse to interest rates. A rise in bond price means a lower interest rate and vice versa.

📈📉 Let's have a look at the long-term chart. I'm using the weekly timeframe to remove the day-to-day noise.

You can see that since the January 2020 peak, bond prices have fallen. This was when interest rates bottomed and started rising. The bear market in bonds extended to Oct 2022. Subsequently, we have seen a rally in bonds and therefore a drop in interest rates.

The multi-trillion dollar question is: Was Oct 2022 the BOTTOM i.e. has interest rates peaked?

My technical view is that the bearish trend in bonds is still the dominant force. So far the bounce off the bottom does not yet signal a trend reversal. For this to be the case, I need to see TLT move higher beyond 114.

IF price moves beyond 114, I would be more confident in stating that at a minimum there has been a Change in Behaviour. At that price level, the size of the upward move would be the largest since the Jan 2020 top. Larger than the upward bounce that began in Mar 2021 and ended in Nov 2021.

A Change of Behaviour signals that market participants are starting to have differing opinions. It is this change in opinion that sow the seeds as the first step required for a trend change.

If the bond price falters prior to reaching beyond 114, it is highly likely that we have not seen the bottom and higher interest rates should be expected.

Clearly the next few weeks will be crucial in that determination. I will update my thoughts as the price evolves.