Long Term Structure of the 30 Year Treasury Bond

Dec 22, 2008: 11:34 AM CST

I know – these titles of long term structural chart posts seem boring, but they’re essential in seeing the larger picture or structure from within the current ‘unprecedented’ moving are occurring right before our eyes.  Let’s take a moment now and look at the 30 Year Treasury Bond price dating back to 1980 to today and then zoom in from 2004 to today.

(Almost) 30 year chart of the 30 Year T-Bond (Price):

The first observation you should make is that this is one of the, if not the cleanest, purest examples of a long-term uptrend perhaps in existence.  Interest Rates peaked in the early 1980s and the Bond (price) market bottomed at that point, paving the way for a three-decade rise to 2009 – I’m certain few if any anticipated the immense and pure strength of the multi-year uptrend.

Notice that there is not a single swing low that falls beneath a prior swing low, though some swing highs do make lower highs than prior values.  One would be hard-pressed to find a better example of an ideal uptrend.

Another bit of information stands out on the chart, that of the record new momentum high that is forming on the current price surge from $115 to $140 which has taken place in less than two months.  The momentum oscillator – the difference between a 3 and 10 EMA – is registering $10… the comparable peak of $7.50 occurred in 1986.  This is indicative of funds and investors plunging their money into the safest investment vehicle, though buying outright T-Bonds here will tie up your investment for 30 years.  It’s an immense flight to quality that should not be ignored.

I will not try to place an Elliott Wave count on the above chart, though various interpretations exist I am sure.  The Bond market appears to be a “Market in Motion” with scarce retracements and an almost linear pathway up.

Let’s drop the chart down to weekly bars and view the period from 2004 to roughly 2009 to put this recent surge in a closer light.

5 year chart of the 30 Year T-Bond:

Again, we see a record new momentum high (though we’d need to see more weekly data to confirm this) and price has surged higher in a manner once thought reserved only to speculative internet stocks in 2000…. literally straight up.

This could be extremely concerning (from an economic standpoint) or very reassuring from a contrarian/sentiment standpoint – or also from a standpoint of “reduced long-term rates will stimulate economic growth.”  However you interpret this move, it’s significant.

There are doomsday prophets out there interpreting this move as the end of the economic world – I wouldn’t advise getting caught up in that line of thinking… not yet at least.

A portion of this move – if not a majority of it – comes from the Federal Reserve stating that it intends to buy up long-term Treasuries to help reduce long-term rates (the Fed has far more control over short-term rates than long-term rates in terms of Interest Rate announcements).  Interest Rates on the 30-Year T-Bond currently stand around 2.6%, which is down from just under 5.0% earlier in June, 2008 (and also down from 9.0% which we experienced at the beginning of 1990).

Still, there has been a flight to safety and perhaps a well-advised one in this economic environment.  That money has come out of the stock market and commodity markets in general.

Continue to watch these inter-related markets (bonds, stocks, commodities, and currencies) for further clues and always remember to pull back the timeframe to get a better perspective on what’s happening right now.

Corey Rosenbloom
Afraid to Trade.com

5 Comments

5 Responses to “Long Term Structure of the 30 Year Treasury Bond”

  1. Andrew Stanton Says:

    Vertical move up, it will be ugly after it ends.

  2. toad37 Says:

    Parabolic moves almost always, if not always, retrace don’t they? 🙂

  3. Corey Rosenbloom Says:

    Andrew and Toad,

    I wanted to hint at that in the post, which is why I mentioned the “this is good from a contrarian standpoint.” In addition, when we have near uniformity in the market (meaning everyone running for the exits at the same time), the crowd is almost always wrong, so you’re both right – parabolic moves, rather than being bullish in this case, are actually quite bearish in a sense, particularly if they use up all remaining buying power (or, stated differently, “Everyone who wants or needs to buy, has already bought.”).

    I like Andrew’s comment: Vertical moves are ugly after they end.

    Indeed.

  4. Reggie Perrin Says:

    inclusion of these v long-dated charts is excellent

    meanwhile fading a parabolic move requires both patience and deep pockets…… you might well have to wait weeks/months

  5. toad37 Says:

    Good point Reggie. I’m not ready to jump in just yet. When it breaks to the downside, I’m sure there will be time to get on board. Better late than sorry, right?