bond market

U.S. Treasury Bonds – Last Week’s Big Winner; This Week’s Big Loser

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 U.S. Treasury Bonds turned about face and dropped more than 3% in Monday’s trading. The huge reversal and decline wiped out all of last week’s increase which I referred to in my previous article…

“…the big winner, both relatively speaking (compared to everything else) and in absolute terms. Bond prices began rising sharply as early as Monday afternoon and finished the week with peak prices up 4% around mid-day on Friday.” 

By mid-day Wednesday, U.S. Treasury bonds were down more than 8% from their peak level last Friday. Then, in order to thoroughly confuse everyone, bond prices rallied sharply by more than 3%, closing the trading day with a small gain.

What is going on in the bond market? Before trying to answer that question, let’s look at a chart (bigcharts.marketwatch.com) of TLT (iShares Long-term Treasury Bond ETF)…

The sharp increase in bond prices actually began on Friday, March 28th. The total increase from Friday (28th) to Friday (4th) was more than 5%. If you are the least bit familiar with bond prices, you know that that is a big deal.

Given the panic state of most other markets last week, it seemed reasonable to attribute bond market strength to the oft-cited “flight to safety”. That may be so, but how does one explain such a swift reversal as that which occurred Monday? The question requires more than a superficial answer since stocks, while quite volatile, did not provide any signs that investors were in a rush to get back in the pool.

Then Wednesday happened. With President Trump’s forbearance on implementation of the latest tariffs, everything (stocks, gold and gold stocks, silver, and bonds) went up.

A strong up move in stocks on high volume would be reasonably supportive of arguments that last week’s action in the markets was a one-off and that the flight to safety was over. Stocks did not provide that signal Monday. If investors are now convinced that the ‘all clear” signal has been given, why did bonds suddenly rally today. Are bond investors confidently expecting lower interest rates?

BOND MARKET BACKTALK

Right from the outset of the Fed’s policy change re: interest rates last September, the bond market failed to confirm that rates were headed lower.  Here is a statement from my article Backtalk From The Bond Market published in January 2025…
“U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October…
“Why are bond rates rising at the very time the Fed is trying to move interest rates lower?” (Fed Cuts Rates But Bond Rates Are RISING)” 
Funny thing is that bond prices then began rising in mid-January. The correspondingly lower interest rates seemed to put the bond market back in the Fed’s camp. Last week’s strong action was the culmination of three months of higher bond prices. You can see this on the chart below…

After looking further at the chart immediately above, one might conclude that bond prices have peaked on an intermediate basis. That next move lower could come with another broad selloff in stocks and other assets. In that context, maybe today’s reversal to the upside isn’t significant. Time will tell.

Let’s look at one more chart…

The bond market has been declining for five years since 2020. Whether you view the action in the bond market for the past two weeks or for the past few months, in the long-term perspective illustrated in the chart just above, it is difficult to see much that indicates hope for sustaining higher bond prices and correspondingly lower interest rates.

To the contrary, it is a graphic picture of Fed Chair Powell’s long standing proclamation that interest rates will remain higher for longer.

CONCLUSION 

Further declines in stocks might not provide the fuel for higher bond prices. The flight-to-safety argument could be inapplicable.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Backtalk From The Bond Market

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BACKTALK FROM THE BOND MARKET

Investors keep looking to the Fed for supposed “forward guidance”. They are looking in the wrong place. Since mid-December, bond prices have declined another 5% and are currently at new 52-week lows. Here is an updated chart of U.S. Treasury Bond ETF (TLT)…

U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October…
“Why are bond rates rising at the very time the Fed is trying to move interest rates lower?” (Fed Cuts Rates But Bond Rates Are RISING)
Subsequently, the Fed announced a second rate cut, but the announcement lacked the conviction that inflation is under control and that multiple rate cuts could be expected for 2025.
I don’t so much think the Fed has suddenly had a change of heart. The situation is precarious and the cumulative effects of more than full century of money creation (inflation), mis-management, and manipulation have evolved into a game of playing catch with a ticking time bomb.
Former Fed presidents Greenspan, Bernanke, and Yellen all know this and have kicked the can down the road. Jerome Powell was likely aware of the ongoing threat of a catastrophe from which there is no return. The opportunity to be “numero uno” for a season, however, must have displaced any fear of presiding over a credit collapse and economic depression.
THE FED’S DILEMMA

The Federal Reserve doesn’t know what to do; but it probably doesn’t make much difference anymore.

A dilemma is “a situation in which a difficult choice has to be made between two or more alternatives, especially equally undesirable ones.” (New Oxford American Dictionary)

We are hooked on low interest rates and the drug of cheap and easy credit. Maintaining low interest rates furthers that dependency and heightens the risk of overdose. The result would be a swift and renewed weakening of the U.S. dollar accompanied by the increasing effects of inflation.

On the other hand, raising interest rates more could trigger another credit implosion which could lead to deflation and a full-scale depression.

Doing nothing is an option. The problem is that the Fed is holding that “ticking time bomb” and doesn’t know how long it will be until its world blows apart.

WHAT TO EXPECT NEXT

Don’t trouble yourself worrying about who the next Fed chair will be. It doesn’t matter. It is too late in the game for a change to have any meaningful impact. This includes speculation that Judy Shelton might get nominated again. Yes, she is an excellent choice; and, for all of the right reasons.

Unfortunately, that would expose the game of chess being played by the Federal Reserve and its owners. (see Federal Reserve – Conspiracy Or Not? and Federal Reserve vs. Judy Shelton)

The worst possibilities come after something big happens. The Federal Reserve and the U.S. government will work together to stave off any possibility of loss of control. That means that everyone – investors,  traders, citizens, communities – will be subject to a host of new economic and monetary regulations, restrictions, executive orders, etc.

It will be like nothing we have seen in the past and beyond anything we can currently comprehend. (also see Bond Investors To The Fed – “Not This Time”)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

 

Bond Investors To The Fed – “Not This Time”

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RE: FED POLICY…

“I think instinctively – I can’t prove this, we’re going to learn about this empirically – but it seems to me that the neutral rate is probably higher than it was during the intra-crisis period. And so, rates will be higher.”  (Jerome Powell, July 2024)

Powell’s comments were from an interview conducted two months prior to the announcement that the Fed Funds target rate was lowered after more than two years of higher interest rates.

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Treasury Bonds Update

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TREASURY BONDS

There is an important Treasury Bonds update you should know of. There must have been poison gas inside the Treasury Bond price balloon. It appears that bond traders were overcome with it and lost consciousness while still at their desks with their fingers on the sell key.

We know there are buyers for all sellers, of course; but, at what price? Equilibrium in the bond market is like a fantasy mirage in the middle of a desert sandstorm – it is nowhere to be found. Here is the latest chart (source) for TLT, the 20+ Year Treasury Bond ETF…

Treasury Bonds Update Chart

The chart covers trading activity for the past two weeks beginning with Monday, September 25th, and ending with Friday, October 6th.

During those ten trading days, TLT losses totaled almost eight percent. For anything other than U.S. Treasury bonds, that might not seem so bad, but…

These are U.S. Treasury bonds. They are a long-term version of the same securities that are considered a standard for “risk-free” investments – U.S. Treasury bills.

Yes, we know that a longer maturity has more exposure to interest rate risk. Even allowing for an understanding of that risk, though, doesn’t provide much consolation when you watch a “safe”, AAA rated, income-oriented investment that promises to pay interest annually and all your money back at maturity, go up in smoke.

Let’s not forget the “full faith and credit of the United States government” behind those bonds. That should make anyone feel comfy and secure.

BLOODLETTING OR BLOOD-DRAINING? 

It took four decades for the Federal Reserve to engineer interest rates downward to near zero from north of 15% on the very same U.S. Treasury bonds that currently yield 4.7%.

In order to return interest rates to something more historically normal (we’re not there yet), we have endured three years of money destruction.

The past two weeks have accelerated the bloodletting process and the patient may not get a transfusion.

CONCLUSION

In conclusion, this is the summary of the treasury bonds update.  The drop in U.S. Treasury bonds continues. The percentage drop in Treasury bond prices since 2020 now totals more than 53 percent.

The effects are felt in all markets, including auto loans, mortgages, retail consumer credit, etc.

A credit collapse (think 2008) is a very real possibility and so is a washout in stocks. No one is immune. Just ask Silicon Valley Bank.

Things will get worse before they get better; a lot worse for a lot longer.

(also see Bond Market Tells The Real Story)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Bond Market Tells The Real Story

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BOND MARKET TELLS REAL STORY

While everyone else twiddles their thumbs and waits for the next missive from the Federal Reserve, the bond market has spoken loudly and clearly about the near-term (and, possibly long-term) direction of interest rates.

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