The iShares 20+ Year Treasury Bond ETF (TLT) was going down from early August and the marketplace ignored it -- until this week.
This week the 10-year Treasury bond yield touched the incredible level of 1.60% as it jumped about 50 basis points this month. The stock market flinched and traders began selling tech names left and right.
Let's check out some charts.
In this weekly Point and Figure chart of the TLT, below, we used close-only price data and the chart shows a double-bottom breakdown pattern with a potential downside price target of $115.
In this long-term Point and Figure chart of the yield on the 10-year U.S. Treasury bond we can see an upside target of 2.38% but a trade at 2.00% will reach the underside of a long-term downtrend line.
The trend in yield has been down on this chart from 2000 but actually down since 1981. Thank you Mr. Volcker.
A Word About Rates
Let's talk about the backdrop on rates.
Commodity prices have been very strong lately. Everything from copper to lumber to palm oil. Food prices have soared -- just ask any wife or husband.
Housing prices have jumped in many parts of the U.S. and many market observers have linked soaring asset prices and the price of crude oil to the flood of stimulus monies around the world.
Why should an increase in interest rates be such an "overnight" shock to the markets?
Bottom-Line Strategy
A rise in the U.S. dollar in the weeks ahead could blunt the current commodity boom. The Fed could get nervous and do something to rally bond prices. Who knows?
Meanwhile, the TLT is in a downtrend and I do not yet see any bottoming price action. A bounce could happen at any time but it may not be enough to reverse the current trend.
The 10-year Treasury is probably going to move sideways around 1.50% for a while but could reach 2% later this year or maybe next year.
There are a lot of moving parts so try not to get too caught up in day-to-day jiggles.
