Trends

Bond Analysis Report 8/14/19 – More Upside To Come On The 30 Yr Bond

The yield for the longest-dated Treasury bond is now a hair’s breadth away from plumbing its lowest level in history.

Investors said the $22 trillion U.S. government debt market was now approaching this key milestone on a combination of factors including the growing world of negative-yielding government bonds, expectations for Fed easing spurred by rising recession concerns, and the absence of inflation pressures.

The 30-year Treasury bond yield TMUBMUSD30Y, +1.26% ended at 2.13% on Monday, following a relentless rally in long-term government bonds in the past few weeks. The 30-year yield is only a few basis points away from its all-time low set in July 2016, when it touched 2.09% after the U.K. voted to leave the European Union.

Source

So what’s the significance of the 30 year bond yield reaching all-time lows? 

Well Interest rates and bond prices are inversely correlated, meaning when one goes up, the other goes down. 

Because a bond’s payout is fixed, as interest rates go up, the existing bond becomes less attractive because people want to buy the new bond that pays more interest.  So to make the existing bond more attractive, the value of that existing bond decreases.

And as the global and US economy continue to slow down, Fed Powell won’t have any choice, but to lower rates again…possible two more times this year.  So I personally expect the 30 year bond to continue to go up in value.

The chart suggests price will move higher to the monthly supply at 174’00.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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