Is the Bond Bear Market Finally Over or Just Hibernating?
Is the bond bear market finally over? That is the question everyone is asking now that bond prices rallied sharply following the November FOMC policy meeting. As noted earlier:
“On Wednesday, Jerome Powell’s speech sparked a broad rally in stocks and bonds as market expectations for further rate hikes collapsed.
There was nothing new about the Fed’s recent policy announcement as they maintained that higher Treasury yields are doing their work in slowing economic activity and, ultimately, inflation.
However, they did, again, as expected, leave open the possibility of further rate hikes as needed.”
“Given that the Fed did little to talk up the projections of further rate hikes, the market took this as meaning the Fed is likely done hiking rates. Of course, that means, from the market’s perspective, the subsequent actions will be ‘rate cuts.'”
With the more “dovish” tone of the Fed’s commentary, combined with a much weaker-than-expected employment report last Friday, expectations for higher yields collapsed, sending bond prices higher.
As shown, on a short-term basis, bond prices rally sharply to the “neckline” of a potential “head and shoulders” low. That technical pattern on iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), which is bullish for bond prices if it completes, is supported by a positive divergence in both the MACD “buy signal” and the Relative Strength Index (RSI).
However, while this rally has been very encouraging in the short term, there are many “trapped longs” that will be looking for an exit to sell holdings at higher prices. Such will apply pressure to the recent rally, as we saw profit-taking last Friday and again on Monday.
As shown above, a retracement that sets a higher lowand then breaks the
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