R.I.P., Great Bond Bull Market?
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Many of Wall Street’s chart-watchers are fixated on the one above (click to enlarge it). It shows how the yield on the 30-year Treasury bond has been mostly declining since 1987 -- a trend that now may finally have run its course.
The T-bond yield has had plenty of ups and downs along the way over the last 24 years, but the pattern overall has been one of ‘lower highs and lower lows’ in the yield -- a true ‘secular’ decline in interest rates. For bond investors, that has meant a spectacular bull market ride, as falling market rates have boosted the value of older fixed-rate securities. It was an easy, buy-and-hold, low-risk path to wealth.
But with the rebound in longer-term rates since October, the T-bond yield rose as high as 4.62% last Thursday. It pulled back a bit, to 4.56% on Monday. The chart mavens now have zeroed-in on the 4.70% level: If the yield climbs above that, they say, it would break the long-term trend line back to 1987 -- an ominous signal.
A rise to 4.85% then would take the yield above the 2010 peak of 4.84% last April 5. John Spinello, bond strategist at brokerage Jefferies & Co. in New York, said that would ‘confirm, in my opinion, the end of the bull run’ in bonds after more than two decades. (Those are his annotations in the chart.)
Chart patterns don’t have infallible predictive powers, of course, but plenty of bond market pros have been warning over the last year that the secular decline in interest rates was most likely at an end, assuming that the global economy wasn’t about to fall off a cliff again.
The question is, even if longer-term rates have stopped falling, do they necessarily have to rise significantly from current levels? Pimco’s Bill Gross, who said several times last year that the long bond bull market probably was over, sees only a gradual rise in Treasury yields from here.
But that’s a bet that the U.S. economy can’t sustain a fast pace of growth -- and that the Federal Reserve’s massive money-printing program won’t result in an inflationary surge down the road.
-- Tom Petruno
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