Based upon very long-term charts and commentary from Hoisington Investment Management Company, for some time we have speculated that the 30-year bond rate would continue downward to around 2%. However, the charts are showing strong technical evidence that interest rates may be turning up in the long term.
(Excerpt from recent blogs for Decision Point subscribers.)
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The monthly chart below shows bond rates going back to 1948, at which time long bond rates were about 2%. After the 1981 peak, rates have trended downward toward, we assumed, the historical low. Now it appears that the bottom is in and that rates are heading higher.
Note that the monthly PMO has turned up from its second most oversold level in 50 years, and has crossed up through its 10-EMA, rendering a PMO buy signal.
Zooming in on a 23-year monthly chart we can see a long-term double bottom (2008 and 2012). This compares with the lower PMO low, which sets up a reversal divergence (bullish). We can also see that yield has broken above a declining tops line drawn from the 2011 top, confirming the double bottom. The most important thing that needs to happen next is for yield to break above the declining tops line drawn from the 1994 top.
Conclusion: To answer the question raised in the title of this article, yes, we think that interest rates are making a long-term turn to the upside. The long-term double bottom in yield, plus the monthly PMO bottom and upside crossover are very significant events, indicating that a long-term bottom is in place. If rates do continue to rise, that will have an extremely negative effect on just about everything.
Images: Flickr (licence attribution)
About The Author
Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com
, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.