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10 & 30-yr Bonds to Rally in the Weeks Ahead

10 & 30-yr Bonds to Rally in the Weeks Ahead

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Interest Rate Outlook:

  • Bonds to rally after taking out the 2018 lows
  • On the heels of the largest rate hike since 1994

Last week, the 10 and 30-yr bonds took out the 2018 low and reversed on the heel of the Wednesday FOMC meeting. The reversal to close the week back above that multi-year low suggests we may have seen a ‘rinse’ phase that will lead to a rebound.

This isn’t a call for the bottom, but more of a correction in the rising rate environment. Rates appear to be poised to continue higher for the foreseeable future, but it won’t happen in a straight line. There will be some zigs and zags.

Last week’s 75 bps hike by the Fed was the largest since 1994, grabbing headlines that reached even the least informed in the investment world. I know, because a couple of people that aren’t even remotely market folks brought it to my attention. This piece of anecdotal evidence creates nice confluence with the price action.

How far bonds rise/rates fall is hard to say, but seeing the 30-year ultra rise back to at least 160 looks reasonable, and what may very well prove to be a conservative call. The 10-year ultra bond running back to the 130 handle would be the equivalent. These levels are the highs of the last bounce sequence we saw.

From there we may see the decline reassert itself, something we will examine should we get to that point in the weeks ahead. As long as last week’s lows at 121’16 (TN) and 144’08 (UB) aren’t broken on a weekly closing basis, then a bullish outlook stands.

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10-yr Ultra Weekly Chart

10-yr ultra weekly chart

TN1! Chart by TradingView

30-yr Ultra Weekly Chart

30-yr ultra weekly chart

UB1! Chart by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.