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Is It Time to Buy Bonds Amid Rising Rates?

Bonds, growth stocks and other assets have taken a beating due to rising rates. Is it time for that trade to reverse? Let's look at the TLT ETF.

Interest rates have stolen the headlines lately as investors continue to focus on inflation, Treasury yields and the carnage in the tech sector.

Specifically, high-growth stocks have taken a beating. While some of the higher-quality plays like Pinterest  (PINS)  and Roku  (ROKU)  have seen declines of “just” 30% to 35%, others have declined by 40%, 50% or more.

For instance, Fastly  (FSLY)  has dropped more than 50% from its highs. So has Jumia  (JMIA) .

Tesla  (TSLA)  saw a peak-to-tough decline of 40%, while NIO  (NIO)  dropped 52.3% at its lows. Even Nvidia  (NVDA)  - a name I like on the dip - saw a 25% haircut from its highs.

The blame for all this? Rising rates.

While rates have been rising, I think it may be the blame for some profit-taking, margin calls and cascading selloffs where sharks smell blood.

In other words, these are the reasons that growth stocks have been declining, but higher rates are being used as the culprit. It’s a convenient excuse, but doesn’t tell the whole story.

Specifically, interest rates are still incredibly low! Further, the S&P 500, Russell 2000 and Dow Jones Industrial Average are all at new highs. And what about bonds? Well, those are getting crushed just like high growth.

The iShares 20+ Treasury Bond ETF  (TLT)  was recently down 25% from the March 2020 high. The ETF is down 13.5% in the past three months and 7% in the last month.

Is It Time to Buy Bonds?

Daily chart of the TLT ETF.

Daily chart of the TLT ETF.

The TLT was trading in a well-defined downward channel, bouncing between support and resistance as it was trending lower.

However, once the $148.50 level gave way as support - along with channel support - prices began to cascade lower. The ETF has now sold off for six straight weeks, as bulls look to find some support.

Luckily, the 200-week and 50-month moving averages are coming into play in the $135 to $136 area.

While it may be choppy for another few sessions or even another few weeks, the current area seems like a decent risk/reward for getting long.

If support fails to hold, then the 100-month moving average currently near $128 is likely in play.

On a rebound, I want to see the TLT get back up to the 10-week moving average. Above that puts prior channel support in play, followed by the $148.50 level.

Is the rout in bonds and the rip in rates over with? I don’t know. All I know is that these higher rates are still pretty low, historically speaking, and the TLT appears oversold.