Yields Up, Price Down

Treasury bonds experienced a big sell off to end the week last week. It seems as if the bond market is pricing in the prospects of fewer rate cuts. It looks as if we will see more downside in the near future.

The bond rally started once the Federal Reserve hinted towards the idea of rate cuts. The rally has stalled out for the past few months as a slow of hotter than expected inflationary economic data was reported. The fact that the Fed has increased the supply of treasuries being sold only adds to the pressure that is keeping bonds from climbing.

Personally, I think treasuries are a great investment, even though the near-term picture looks a little sketchy. The longer you plan on holding, then the less risky the investment becomes. Plus, if you are going to invest in the debt of any nation, then why not invest in the world's biggest economy. Especially with all of the geopolitical tensions across the world.

Ultimately, the Fed decides where interest rates will be in the future. But, their decisions about interest rate levels are dependent on the Fed's dual mandate.

Basically, if employment and the price of goods and services remain at the levels that they are now, then the Fed will likely hold rates at their current levels. If we see weakness in employment or disinflation, then the Fed will aid the economy through rate cuts. If inflation accelerates or employment numbers continue to strengthen, then we might possibly see further hikes.

Currently, with the trajectory of energy and fuel prices, it appears as if we might see at least a slight uptick in inflation in the near future. This would surely put any rate cuts on hold. You can get more insight into the rising fuel and energy prices in the link below.

The long-term picture shows a steep sell-off in bonds as soon as the Fed mentioned its quantative tightening program a few years ago. The bond market crash has since slowed down and appears to be consolidating between two long-term Fibonacci levels.

If we zoom in and look a little closer, we can see a bearish downward sloping price channel. It appears as if we might see more downside as the price has rejected the resistance level of this price channel.

The short-term picture looks bearish as well as the price is traveling within a downward price channel. Also, the price closed the week below a Fibonacci support level. Treasuries are not looking too good on just about every timeframe. It looks like we will see more downside until the market is confident in rates coming down.