The relentless sell off in the bond market post-election did not go unnoticed by market players. I’ve seen a ton of articles proclaiming that the bull market in bonds is over and the bear is going to growl over bonds. Yet, the long bond has not even reached its highest levels from 2015, so why are so many people saying it’s the end of the bond bull market? Year after year, we hear this same tune, yet it never materializes. Is it true this time? Color me skeptical (so far).
While the selling has been quite intense since Donald Trump was announced President-elect, the assumption was that bond investors were going to flee the market and rates will rise. Well, we should all know that would ONLY happen if inflation expectations start to rise. They have been rising somewhat but not enough to call for the “end of the world” in the bond market. With the 10 year bond at 2.3%, it is hardly a major cost to the government. Corporations have not been rushing deals out the door to capture low rates, either.
As a technician, I understand that trends, trajectory and momentum are important. If the bond market bull run is truly over, as it has been predicted 100 other times since the run started in 1981, then I’m quite sure there will be a major signal. Some analysts have been trying to predict the end so they can bask in the glory of being the ultra contrarian. That’s not my game – just take me where I can make money.
If the bond market is ending its bull run, that means there is some inflation on the horizon – and the Federal Reserve open market committee will do its job by snuffing it out with a more hawkish policy – just like previous inflation cycles. We’ve seen bond selloffs before. This latest selloff could actually put it in a more “normal” market, which is what everyone seems to want. How great would that be?
