What’s the next step for bonds, TLT and interest rates?

The iShares 20+ Year Treasury Bond ETF (TLT) went down from early August and the market ignored it – until this week.

This week, the yield on 10-year government bonds hit an incredible 1.60% as it rose about 50 basis points this month. The stock market shrank and traders started selling tech names left and right.

Let’s take a look at some graphs.

In this weekly point and figure chart of the TLT, below, we only used price data and the chart shows a double bottom breakdown pattern with a potential downward price target of $ 115.

In this long-term point-and-figure chart of the yield on the 10-year US Treasury bond, we see an upward target of 2.38%, but a trade at 2.00% hits the low end of a long-term decline.

The trend in yields has declined on this chart from 2000, but has actually declined since 1981. Thank you Mr. Volcker.

A word about rates

Let’s talk about the background of rates.

House prices have risen in many parts of the US, and many market observers have linked rising asset prices and the price of crude oil to the flow of stimulus funds around the world.

Why would a rate hike be such a ‘nighttime’ shock to the markets?

Bottom-Line Strategy

A rise in the US dollar in the coming weeks could ease the current commodity boom. The Fed could get nervous and do something to restore bond prices. Who knows?

Meanwhile, the TLT is in a downtrend and I don’t see any bottom price action yet. A bounce can happen at any time, but it may not be enough to reverse the current trend.

The 10-year Treasury is likely to move sideways around 1.50% for a while, but could reach 2% later this year or maybe next year.

There are many moving parts, so try not to get caught up in the daily movements.