US 30-year Treasury yields rising

Price at time of writing – 3.80%.

Today I’m beginning a new series of articles on the likely direction of the yield on US 30-year Treasuries, the longest maturity date offered by the US government on its bond issuance. 

The 30-year Treasury may never directly form part of the average person's investment portfolio, but its influence hovers over all our lives on a day-to-day basis. Medium-to-long-dated Treasury yields have a major impact on the share market too, and any surprise or sudden shift in yield would probably cause a major move on global indices. 

The 30-year yield created a major high in August 1981, registering a mind-boggling 15.31% in an era when genuine private-sector inflation had a menacing presence. As a perfect demonstration of the power of Gann-theory analysis, we can see in today's chart that this 1981 high still exerts an influence on the yield over three decades later, and determined the bottom of the long-term yield cycle between 2008 and 2012.  

The initial fall from the 1981 high measured a precise 33.33%, to a level which held firm for the following three years. However, in November 1985 this level gave way and opened the door to a doubling of that initial fall to one of 66.66%. It eventually fulfilled that target, at 5.10%, in September 1998. The target at 5.10% was further supported by my line representing a 50% fall in yield from the secondary high in October 1987. The ongoing decline was accelerated by the stock market crash that same month. It was the recession that followed the technology-led collapse in equities in 2001 that led to the next phase of falling yield, however.

There are no less than four percentage lines that cluster tightly at 2.55%, all emanating from yield highs of importance. The double-bottom formed in 2008 and 2012 marks the end of a 31-year decline in long-term bond yields. With the Federal Reserve continuing to ward off embedded deflationary tendencies through its quantitative easing (QE) programme, this yield is now set to rise to a minimum level of 4.94%. The trigger for this will be a break above 3.82%.

Recommendation: sell US Treasuries with a duration of over ten years. My preferred short sale is of the iShares 20+ Year Treasury Bond ETF (search for ticker TLT).

30-year bond yield chart

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