Future of Interest Rates | Long Bond Position
INTEREST RATES: In our last few writings we have talked about the possible short-term upward shift in the yield curve that was long overdue. The charts within this Blog show the yield curve (interest rate) reaction to the post-election inflation expectations.
Typically, and again in a normalized yield curve structure, money that exits bonds typically find its way into equities furthering a bullish strategy to own stocks. That is exactly what is happening.
The first chart (above) represents the monthly 30 year long bond. As you can see the market has the potential to finally reverse its long term trend. Bond prices are falling as yields rise. If the long bond breaks below 147, the trend could gain momentum and head to the 130 level. We are expecting this to happen with the anticipated hope that economic growth is in our future.
The second chart (above) represents the daily 30 year long bond. As you can see, upside is limited in price and a resumption of the downtrend should continue.
We are currently SHORT the bond and will continue to hold and or add to the position as critical price points trigger and the downward trend continues.
SUMMARY: During the new Administration’s “First 100 Days” we will be evaluating market reactions and reporting our strategy going forward. There will be increased volatility across all asset classes due to fundamental shifts in policy that are expected to come quickly. We will be monitoring the markets diligently.