10- and 30-year bonds will rally in the coming weeks

Interest rate outlook:

  • Bonds rebound after hitting 2018 lows
  • After the largest rate hike since 1994

Last week, 10- and 30-year bonds hit 2018 lows and reversed following Wednesday’s FOMC meeting. The reversal to close the week above this multi-year low suggests that we may have witnessed a “washout” phase that will lead to a rebound.

This is not a call down, but rather a correction in the rising rate environment. Rates look set to continue to rise for the foreseeable future, but that won’t happen in a straight line. There will be zigs and zags.

The Fed’s 75 basis point hike last week was the biggest since 1994, making headlines that reached even the least informed in the investment world. I know this, because a few people who aren’t even market people have brought it to my attention. This anecdotal piece of evidence creates a nice confluence with the price action.

How far bonds are rising/falling in rates is hard to say, but seeing the 30-year ultra rally to at least 160 seems reasonable, and what could very well turn out to be a conservative call. The 10-year ultra bond going back to the 130 handful would be the equivalent. These levels are the highs of the last rebound sequence we saw.

From there, we may see the decline reassert itself, which we will be looking at if we get to that point in the coming weeks. Until last week’s lows at 121’16 (TN) and 144’08 (UB) are broken on a weekly closing basis, then a bullish outlook holds.

Ultra Weekly 10 Year Chart

TN1! Chart by TradingView

Ultra Weekly 30 Year Chart

Ultra Weekly 30 Year Chart

UB1! Chart by TradingView

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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Garland K. Long