Question of the Day: Is the Bond Bull Market Over?
Mish
Bull and Bear Markets
Consider this chart or 10-Year treasuries, courtesy of Jim Bianco at Bianco Research.
I asked Bianco for the above long-term chart. Thanks Jim!
The notes in blue and the arrows are mine. The arrows may seem obvious, now that I drew them, but they would likely have seem obvious had I drawn them differently.
Secular Bull and Bear Treasury Markets
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What's the Definition?
There is no generally agreed upon definition of a Treasury bear market.
Those who suggest a a 35-year bull market is long in the tooth, just might wish to ponder the 100-year secular bull market shown above.
In equities, a 20% decline constitutes a bear market. With Treasuries, 20% moves are ordinary. In the above chart I defined a bear market in bonds as a 100% rise in yield and a bull market as a 50% decline in yield.
With that definition we had a 100-year secular bond bull market from about 1838 to 1938 (a bit longer actually).
Like My Definition?
Hopefully, that chart makes a lot of sense at first and even second glance, but please consider zero bound effects.
Zero Bound Effects Since 2012
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Since 2012, the yield on the 10-year Treasury note has doubled or halved three times. That is what happens as yields approach zero.
Japan provides a stunning example.
Zero Bound Absurdities
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Bear Market Definition Refinement
To accommodate zero bound impacts, we need a ceiling breakout.
- For the US, I propose a bear market is a 100% rise in yield provided the yield tops 4%.
- For Japan, I propose a bear market is a 100% rise in yield provided the yield tops 2%.
Question of the Day
Is the bond bull over?
You tell me, but first provide a definition that makes sense mathematically, and chart-wise.
People have made fools of themselves countless times regarding both the US and Japan.
For 20 years, the long-term yield in Japan was below 2%.
My take?
I do not know if the bond bull is over, nor does anyone else.
My strong belief is the US will enter a recession and yields will tumble. I've been known to be wrong (and right) before.
Powell Promises Patience
Fed Chairman Jerome Powell promises patience: I say So What? It Doesn't Matter
Similarly, economist David Rosenberg says Recession Odds North of 80%.
Given the US has $22 trillion in debt and deficits as far as the eye can see, I have doubts about whether or not the low in yields is in. Yet, we could have a 100-year bull market. It's happened before.
People pretend they know things are are truly unknowable.
Mike "Mish" Shedlock