Technical patterns on 2-year, 10-year, and 30-year US treasuries all suggest yields are heading higher. Let’s also discuss the supporting fundamental case. 
Centerpoint explains “An ascending triangle chart pattern is a bullish technical pattern that typically signals the continuation of an uptrend. They can signal a coming bullish breakout above an area of resistance after it has been tested several times.”
Many people do not believe in technical patterns, others believe in nothing else. Certainly, technical patterns fail often enough.
My take is they work best as entry and exit point strategies, especially when fundamentals align.
30-Year US Treasury Ascending Triangle
The technical picture could not be more clear.
Fundamentally Speaking
- The Fed has hiked rates from a range of 0.00-0.25 percent all the way to 5.25-5.50 percent but there has not been a recession or a significant rise in the unemployment rate.
- On April 1, I noted Manufacturing ISM Inches Positive After 16 Months of Contraction. In response, treasury yields rose.
- On March 31, I noted Spending, Income, and Inflation Data Do Not Support Fed Interest Rate Cuts
I still believe the economy is much weaker than it looks, especially in the Household Survey.
We have an update on Friday. But ADP was on the hot side today, reporting 184,000 private jobs vs a Bloomberg consensus expectation of 150,000.
Real GDP for the Fourth Quarter Revised Up, GDI Jumps
The BEA revised fourth-quarter GDP from +3.2 Percent to +3.4 percent. Real GDI was a whopping +4.8 percent but discrepancies remain and charts tell a better story.
On March 28, I reported Real GDP for the Fourth Quarter Revised Up, GDI Jumps
GDP was stronger than expected in the 4th quarter of 2023.
Many economists and analysts believe GDI is a better measure (they should equal), and the discrepancy is huge. So which one is correct?
In the next 5 years employment in age groups 60+ will drop by ~12.5 million
Due to age demographics, I expect employment in age groups 60 and over to decline by about 12.5 million. Let’s go over the math to see how I arrived at that number.
On March 21, I reported In the next 5 years employment in age groups 60+ will drop by ~12.5 million
Demographic data strongly suggests there will not be a big surge in unemployment even when recession hits.
On the inflation side, even if one foresees recession, literally everything Biden does is inflationary.
Student loan forgiveness, Biden’s push for union contracts, energy policy, regulations, tariff policies, and the ridiculously named Inflation Reduction Act are all inflationary.
So even if recession hits, many items suggest a stagflationary recession, not a deflationary one.
The technicals and fundamentals align. That does not guarantee the outcome, but they provide an ongoing big warning to treasury bulls.
Thanks for this.
I don’t believe in anything but money flows, AD, M*Vt. The proxy for real output is up, the proxy for inflation is down. It will be decided by June end.
And I’ve yet to lose an interest rate bet, futures or otherwise. I could call my broker to buy or sell, and then call him back later to exit the trade without any knowledge of where prices went in the interim.
I have to confess, whilst i always said yields would rise over the long term, i expected them to dip for a year or two first.
The technical picture there is clear, if it fits the ascending triangle pattern
But you have the precursor backwards.
The pole or direction heading into that triangle is a DOWN pole, falling rates, so a continuation pattern points to lower, not higher, rates.
Remember, those patterns work both ways, and the direction heading into that triangle is down.
Good point; and they don’t seem to be making higher highs.
I think two huge things are impacting predictions for the future and making them all suspect. One, many financial problems of the past were solved by simply moving somewhere else. Roman empire collapses, so just move somewhere else and start over. Today there is nowhere “new” to move to. Leave the US? Good luck. And number 2, the baby boomers who have defined current events and politics for 50 years have peaked in terms of fewer and fewer of them turning 65. I dont think anything we’ve learned or modeled for the future has anything to do with our success with the past. It’s gonna be a new world .. mostly full of 50 year olds (kids turning 16 also dropping) since the baby bust births dropped to bottom in 1973, and every year for the next 30 years, more and more people will turn 50. THATS where the analysis should be.
link to thedailydoom.com
Federal Reserve posts first operating loss is history.
Just stumbled across this. Not sure if credible.
It’s my last comment on Mish.
Where are you going? We need Balance in this Comment section and you bring that here. Take care.
You mean the literate braindead constituency? That kind of balance?!
Bye Bye Baby
I can’t blame you. Mish has informative posts on economic indicators, but the signal-to-noise ratio in the comments is low. I’m going to take a pause until he implements an ignore feature.
Euthanasia ?
Patterns are very important
This Fri is the last day of the ramadan and Jerusalem El Quds day in Tehran. Iran might strike Israel directly along with its proxies. If correct, SPX and the 10Y will drop.
I’d be a big buyer after that peace initiative.
Bibi had a surgery last week. He is still in the hospital.
Many are watching to see whether the end of Ramadan changes anything. On either side.
Crude would rock, long rates should drop, but crude may interfere in the short term (short term higher crude is inflationary, longer term deflationary)
It might ease off the protests by hungry bad-tempered Muslims in western capital cities.
Is that why you are celebrating your last comment?
I see decent arguments both sides. But slight favor yield rises.
Yields fall: lag effects eventually hit harder in real estate, CRE, auto sales, consumer demand, savings is running lower, China dumps cheap goods,
Yieds rise: big wage hikes union & gov’t jobs, labor shortages could be secular issue (but what about AI?), housing shortage is permanent… rents rise & house prices do not fall much, middle east politics = higher oil, lots of UST issuance and less buyers, high boomer retiree spending insensitive to economic forces, 5 million+ illegal migrants under Biden (doesn’t show up in official population stats)
….But anything over 4.5% on 10 yr starts to really hit residential real estate & CRE very hard. Home sales will fall. But less home sales will also pressure rents. And higher interest rates means less apartment construction (doesn’t pencil)…so less apartment completions in ’25, ’26 + 5 million+ new illegal migrants, will pressure rents even more.
Where’s the money from wages rises coming from? More debt?! You end up playing whack-a-mole with bills for money that isn’t there.
Congress has no plan to stop the exponential rise in Treasury debt. Neither Biden or Trump will balance the budget in the next four years. Only the bond vigilantes have the inclination to reach for the brake.
Bond vigilantes are extinct. They no longer exist
Policy forced DEFLATION or mass riots. The FED can pick their poison. They will only get one
My rent was just raised another 5% here in LA and I’m going to the nice but not quite white tablecloth restaurants they’re packed so I don’t see signs of slowdowns here in LA
I live in an urban area and it’s the same here. People aren’t slowing thier spending down one bit. Over the weekend I went on a trip to visit family in rust belt PA. I stopped at a few stores. All were packed. I hear and see the stats that inflation is biting, but it sure doesn’t look that way when I’m out and about. People are spending like times are great.
I agree more with Jeffrey Snider on the ultimate near-term direction of interest rates. When the recession hits, a lot can change depending on the results of the election, the budget, the response of the Treasury and Fed (do they print money and inject demand?).
This is a misinterpretation of a triangle (Elliot Waves). The blue model is the bull case where the triangle forms AFTER a trend has ended. Yields are in a correction (bear market) that began in October 2023. This triangle implies yields will break below the lower edge of the triangle and continue to correct the yields rally that took place between March 2020 and October 2023. I estimate the yield to find downside support between 3.0 and 3.5%, the area of the preceding Wave 4.
Cycle analysis is looking for the 54 month low to take place in the late summer / early fall of this year. This is a major cycle, so interest rates would be expected to rise sharply out of the cycle bottom.
Time and structure models are sending the consistent message. Even though the rate on a 6 month CD is paying more than that for a 9 or 12 month CD today, the rate when the 6 month matures will be less than that of a 9 or 12 month CD today as the bond market reverts.
5 year chart for $TYX shows no evidence of a bear market in rates? Nothing but up-up-uptrends on that chart…
Treasury bonds should pay over 8% according to Shadowstats.
link to shadowstats.com
Tack on 3% risk premium for a corrupt government.
ABSOLUTELY. The fraud long bond market been following FED talking points like lemmings and based on zero risk. I wouldn’t even consider buying highly risky junk treasury bonds with a yield under 8% and would be more willing closer to 10%
“So even if recession hits, many items suggest a stagflationary recession, not a deflationary one.”
Buy silver?
God no.