Are Bonds Headed Back To Extraordinarily Low Rate Regime?

Tyler Durden's picture

Via Dana Lyons' Tumblr,

The U.S. 10-Year Treasury Yield has dropped back below the line containing the past decade’s “extraordinarily low-rate” regime.

Among the many significant moves in financial markets last fall in the aftermath of the U.S. presidential election was a spike higher in U.S. bond yields. This spike included a jump in the 10-Year Treasury Yield (TNX) above its post-2007 Down trendline. Now, this was not your ordinary trendline break. Here is the background, as we noted in a post in January when the TNX subsequently tested the breakout point:

“As many observers may know, bond yields topped in 1981 and have been in a secular decline since. And, in fact, they had been in a very well-defined falling channel for 26 years (in blue on the chart below). In 2007, at the onset of the financial crisis, yields entered a new regime.


Spawned by the Fed’s “extraordinarily low-rate” campaign, the secular decline in yields began a steeper descent.  This new channel (shown in red) would lead the TNX to its all-time lows in the 1.30%’s in 2012 and 2016.


The top of this new channel is that post-2007 Down trendline. Thus, recent price action has 10-Year Yields threatening to break out of this post-2007 technical regime. That’s why we consider the level to be so important.”

We bring up this topic again today because, unlike January’s successful hold of the post-2007 “low-rate regime” line, the TNX has dropped back below it in recent days. Here is the long-term chart alluded to above.

And here is a close-up version.

As can be seen on the 2nd chart, the TNX has just broken below several key Fibonacci Retracement levels near the 2.30% level – not to mention the post-2007 Down trendline which currently lies in the same vicinity. Does this meant the extraordinarily low-rate environment is back?

Well, first of all, the Federal Reserve only sets the overnight “Fed Funds” rate – not longer-term bond yields (at least not directly). So this is not the Fed’s direct doing (and besides, they’re in the middle of a rate hiking cycle). Therefore, the official “extraordinarily low-rate” environment that the Fed maintained for the better part of a decade is not coming back – at least not imminently. But how about these longer rates?

Outside of some unmistakable influence resulting from Fed policy, longer-term Treasury Yields are decided by free market forces. Thus, this return to the realm of the TNX’s ultra low-rate regime is market-driven, whatever the reason. Is there a softer underlying economic current than what is generally accepted at the present time? Is the Trump administration pivoting to a more dovish posture than seen in campaign rhetoric? Are the geopolitical risks playing a part in suppressing yields back below the ultra low-rate “line of demarcation”?

Some or all of those explanations may be contributing to the return of the TNX to its ultra low-rate regime. We don’t know and, frankly, we don’t really care. All we care about, as it pertains to bond yields, is being on the right side of their path. And currently, the easier path for yields is to the downside as a result of the break of major support near 2.30%.

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Check out the Premium post at our new “all-access” site, The Lyons Share, for the specific important levels of potential support and resistance on the 10-Year Yield. If you find our charts and research that we share here helpful and enjoyable, check out The Lyons Share – we are confident that you’ll find a lot of value in the service.

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silverer's picture

Lets face it. What US T notes really need is a negative interest rate. And they'll pay you back! Honest!

SmilinJoeFizzion's picture

Lets ask Gartman and Odey- Whatever they say, just pull a Costanza and do the opposite.

Soul Glow's picture

Maybe we get an ever so slight rally here, but it will be sell in my and get the fuck outta Dodge.  There will be a correction next Fall of 20% off the highs.  Trump will say he can fix it with moar spending, Yellen will agree and there won't be any more rate increases.  The Fed balance sheet will not be reduced and the bloated pig will struggle on.  Then in 2019 there will be an epic collapse heading into the election.  This so to get the Blue Team back in the WH.  Then it will be more QE and NIRP 4 EVER.

Quinvarius's picture

No.  If the Fed ever plans on raising rates, bonds must go down.  Unless you are day trading with the same prior knowledge as the bankers who talk to the Fed and Treasury every day, there is no point getting involved.  I assure you, bond prices will be cut in half over the next 5-10 years.  Don't expect a crash.  Don't expect a big swoon.  They are not going to let that happen.  But this crap is uninvestable.  

Paul Morphy's picture

I was hoping that we were seeing the bond market beginning to break in January 2017.

Sadly yields have fallen since.

We need the bond market to break.

Paying countries for the privilege of buying their national debt says it all. System is banjaxed.

Consuelo's picture



All completely dependent on a stable geopolitical and global-trade scenario which does not deviate from the generally accepted norm.   

So are China & Russia any different geopolitically and trade-related than they were 9 years ago?    Is the Middle East?    

How likely are the aforementioned to remain 'stable' in their fealty to $USD-denominated global trade and foreign policy actions?



warpigs's picture

That chart, whether zoomed in or zoomed out, actually portends an upward move IF you are a technical guy who looks at things like wave theory etc. The 10yr looks to be bottoming out as I type this and that means it is headed higher. 


From a sentiment and psychology standpoint, articles deadpanning a trend usually come out at the terminus of a trend, not the beginning. *eg: Think of real estate trends. When those dumb fucking fix and flip circuses hit the circuit and when guys like Tony Robbins and other asshats show up to big conventions to tout real estate, the trend is nearly dead.  As the old addage goes, when soccer moms driving minivans are wearing some trendy shit, the market is made and done.


Bottom line? In the short and medium term, that 10yr is surely headed higher.

Insurrexion's picture

Fuck Fibonacci curves.

This is about the Federal debt.

Think. It's as easy as 1, 2, 3.

1. Roll over $20T in federal debt into negative treasuries.

2. Debase the $US Dollar (to pay off $20T in Federal debt with lower valued dollars).

3. Hyper-Inflate.'s gone.


Fucking Magic.