Why Bond Yields Will Go Lower and Prices Will Rise

NEW YORK (TheStreet) -- The yield on the 30-year Treasury bond has risen a bit more over the past week, meaning it's now likely to pull back to the zone between 2.60% to 2.84%.

Because bond yields move inversely to prices, that means prices should rise.

This follows up and builds on the analysis last week on the 30-year bond yield that looked at its movements since the all-time low in January. That analysis suggested that after rising a few more basis points, the rise from the January low would be complete.

Once that pattern was completed, the expectation was that yields should retrace 38% to 62% of their rise, and pull back to the 2.52% to 2.72% zone in the ensuing weeks.

Because yields rose a bit more, however, the ideal pullback zone is now 2.60% to 2.84%.

Many investors are more comfortable using prices when looking at bonds, so last week's analysis also looked at the iShares Barclays 20+ Yr Treasury Bond (TLT), the exchange-traded fund that tracks longer-term Treasurys.

The forecast was that the ETF would rise, in a corrective bounce, toward the $126 to $132 zone.

After a slightly deeper decline, that bounce zone can now be refined to the $123.50 to $128.80 zone in coming weeks.

TLT Chart

TLT data by YCharts

As of last week, sentiment surveys show that as few as 8% of traders are now bullish on bond prices. This lack of bulls hasn't been seen since the third quarter of 2013. Following that herding uniformity (which is typically a reversal extreme), bond prices rose for 16 straight months to put in the peak this January.

So, the herd's latest return to certainty about the future of bond prices warns that at least a short-term low in prices was imminent as of last week, which the Decision Support Engine indicated.

In addition, since the analysis last week, the daily bar stochastics have crossed up, issuing a short-term buy signal. TLT bottomed two days after last week's warning and are rising now in what should be a corrective rally toward Aug. 1, give or take a week.

Timing is the unknown, though, as pattern and the technical condition of a market, which the DSE measures (in the same way that a barometer anticipates a weather change), determines objective situational awareness.

It's important to monitor this closely, as the coming bounce in bond prices and the corresponding low in yields could be the most important trend change since January.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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