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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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.