- The 40-year bond bull market could be on its last legs as interest rates continue to rise.
- The implications are far-reaching, with higher interest rates often leading to lower stock prices.
- A chart of the 10-year US Treasury yield contains “the most important trendline of all time,” Carter Worth said.
Loading Something is loading.
The 40-year trend of falling interest rates may be drawing to a close as the 10-year US Treasury yield tests resistance against “the most important trendline of all time,” according to Worth Charting technical analyst Carter Worth.
Bond prices rise when interest rates fall, but amidst a period of record inflation and an expanding economy, the Federal Reserve is raising interest rates to cool demand and tame inflation.
Now the much-publicized 10-year US Treasury yield is pushing against its 40-year downtrend line, which begins with the 1981 peak in interest rates at 15.81%.
“The all-data log chart for US 10-year Treasury yields is the most important trendline of all time, in all markets,” said Braxton tweeted on Monday. It’s so important because whether the 10-year yield breaks higher or is rejected and moves down from here will have far-reaching implications for the stock market and the pricing of risk assets in general.
If the 10-year US Treasury yield decisively breaks its 40-year downtrend, it could be interpreted as the start of a new uptrend, which would mean further hikes in interest rates and continued pressure on stock prices. But if the 10-year yield is decisively rejected at the downward sloping trendline, one could expect low interest rates to continue for an extended period of time, which could help boost valuations for risky assets and push stock prices higher.
“This is the exact same trendline that’s been in effect since the 1981 peak, and that line comes into play at 2.81%… how we react to that line really determines a lot. Should we retire because
Are things like that coming, or are we really pushing through in a meaningful way,” Worth told CNBC Monday, adding that he doesn’t think there’s much room for higher returns.
If Worth is correct in his assessment, it would be a welcome sign for stock market investors, who already suffered a more than 10% correction in the S&P 500 earlier in the year.
But the 10-year US Treasury yield hit 2.83% on Thursday, which is slightly above the line in the sand that Worth is closely watching. If yields don’t quickly halt their uptrend, things could get even tougher for the stock market.
The Fed’s plan to raise rates by 0.50% in May could be the final nail in the coffin for the 10-year Treasury yield to end its 40-year downtrend and start a new long-term uptrend and one with it effectively end decades of bull market in bonds.
worth charting