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U.S. Treasury Bonds turned about face and dropped more than 3% in Monday's trading. The huge reversal and decline wiped out all of last week's increase which I referred to in my previous article...

"...the big winner, both relatively speaking (compared to everything else) and in absolute terms. Bond prices began rising sharply as early as Monday afternoon and finished the week with peak prices up 4% around mid-day on Friday."

What's going on with bond prices and interest rates? Before answering that, let's look at a chart (bigcharts.marketwatch.com) of TLT (iShares Long-term Treasury Bond ETF)...

The sharp increase in bond prices actually began on Friday, March 28th. The total increase from Friday (28th) to Friday (4th) was more than 5%. If you are the least bit familiar with bond prices, you know that that is a big deal.

Given the panic state of most other markets last week, it seemed reasonable to attribute bond market strength to the oft-cited "flight to safety". That may be so, but how does one explain such a swift reversal as that which occurred today? The question requires more than a superficial answer since stocks, while quite volatile, did not provide any signs that investors were in a rush to get back in the pool.

A strong up move in stocks on high volume would be reasonably supportive of arguments that last week's action in the markets was a one-off and that the flight to safety was over. Stocks did not provide that signal, so let's look elsewhere.

BOND MARKET BACKTALK

Right from the outset of the Fed's policy change re: interest rates last September, the bond market failed to confirm that rates were headed lower.  Here is a statement from my article Backtalk From The Bond Market published in January 2025...

"U.S. Treasury bond prices have now declined 16% since the Fed announced a reversal in its interest rate policy and the first rate cut last September. The latest weakness comes in the face of a second rate cut, so it begs a repeat of the question I posed last October...

"Why are bond rates rising at the very time the Fed is trying to move interest rates lower?" (Fed Cuts Rates But Bond Rates Are RISING)" 

Funny thing is that bond prices then began rising in mid-January. The correspondingly lower interest rates seemed to put the bond market back in the Fed's camp. Last week's strong action was the culmination of three months of higher bond prices. You can see this on the chart below...

After looking further at the chart immediately above, one might conclude that bond prices are consolidating recent gains before moving higher. That next move higher could come with another broad selloff in stocks and other assets. In that context, maybe today's huge decline isn't significant.

Let's look at one more chart...

The bond market has been declining for five years since 2020. When you view the action in the bond market for last week and today, or for the past few months, in the long-term perspective illustrated in the chart just above, it is difficult to see much that indicates hope for sustaining higher bond prices and correspondingly lower interest rates.

To the contrary, it is a graphic picture of Fed Chair Powell's long standing proclamation that interest rates will remain higher for longer.

CONCLUSION 

Further declines in stocks might not provide the fuel for higher bond prices. The flight-to-safety argument could be inapplicable.

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