Recent stock weakness in August is 100% tied to the move to higher yields in bonds. When yields rise, prices fall. Currently since the price peak in May the 20 year has seen its price drop -16.73%. Make no mistake about it the bond market is in a bear market now. So where do we go from here?
We track the iShares Treasury Barclay’s 20+ Year (TLT). Also worth tracking is the iShares Braclay 7-10 Year (IEF) that has fallen -8.17%. The longer in duration you review the greater its price move to rising yields.
So if you held IEF it pays an effective yield of 1.69%. That means if you were invested in IEF, then you have lost over 5 years of future payments. That is painful for any investor and the pain will get worse as this plays out over the next few years.
However, there are going to be serious rallies in the bond market over the next few years and a weekly chart will give us the best major support levels. We have marked up these charts for your review.
Today at 2:00 we will have major news that will impact bonds. The Federal Reserve Open Market Committee (FOMC) will release its latest minutes from its last meeting. This is important because the rise in rates is due to Federal Reserve ultimately tapering its purchase of bonds.