Question Of The Day: Is The Bond Bull Market Over?

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

 

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

 

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

 

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.

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Comments

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Norman Mogil 3 months ago Contributor's comment

True bond investors look at decades to determine secular trends as "bear" or "bull" markets, not 2-5 year movement in yields. So, your chart showing a tiny up tick in yields from July 2016 hardly constitutes any meaning in the context of the secular trend. It is just a blip which may be eliminated in large measure by the 2019-20 recession.

Gary Anderson 3 months ago Contributor's comment

Interesting comment. Also, 10 year yields appear to be in a range, Prof.