Long bonds are sending a message loud and clear these days, and I’m all ears.
When the Fed started cutting rates last month, long-term bonds reversed course lower. They are making fresh 3-month lows this week.
This might seem surprising, but it's not as uncommon as you'd think.
We saw a similar situation in November 2018, when the Fed raised rates, but the bond market didn't buy it, with the TLT rallying for two years.
Now, the Fed is cutting rates, and long bonds are calling their bluff again. This time, by reversing trend lower.
You can see what I mean in the following chart:
If bond prices continue to decline, it likely signals an expectation of rising inflation or stronger economic growth.
Personally, I’m betting on inflation increasing.
If this is the case, the Fed rate cuts may be a misstep.
While the Fed may be focused on today's economy, long bonds are a reminder that the market is already looking ahead, and right now, long bonds are suggesting that inflation is on the horizon and that rates might remain elevated for longer.
-Allstarcharts Team
Thanks for reading.
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