The longer-term trends for interest rates can continue for decades. Powerful evidence indicates that a nearly 40 – year bear market for US interest rates ended in 2020.
The shortest-term US government debt instruments are 90- day/13- week Treasury bills.
The monthly chart of 13- week Treasury rates (IRX) courtesy of Trading View shows its history back to 1989.
Normally when charting movements with large percentage gains, a Logarithmic scale chart should be used. The IRX chart illustrated is Arithmetic scale because the data from Trading View shows marginally a marginally negative IRX which makes a weird Logarithmic chart.
The Trading View chart of 13 – week Treasury rates only goes back to 1989 and does not give a complete picture of the bear market in short-term interest rates. The all-time high for 13 – week Treasury rates was made in December 1980 when they went over 18%. That’s not a typo, short-term rates went to eighteen percent!
The break above the declining trend line from 1989 and the move above the prior peak made in 2019 implies a major trend change has begun.
The monthly chart of 30-year Treasury bond yields (TYX) illustrates its long-term history.
This chart encompasses the entire TYX bear market. The price peak was made in October 1981. Note the RSI peak was made in March 1980 at a level of 88%. The highest RSI reading for the current cycle was 69%, still not in the overbought zone implying room for more upside action in the coming months.
Three important factors since the major TYX bottom made in March 2020.
- A break above the declining trend line from the peak made in 1981.
- TYX move above its prior significant peak made in November 2018.
- The move up from March 2020 is the largest in 40 – years. The 2020 to 2022 gain is 307% dwarfing the next largest gain of 91% made from 2008 to 2009.
This is powerful evidence that the bear market from 1981 to 2020 is complete and a bull market that could continue for many years may have begun.
How long could an interest rate bull market continue? The prior bull market began in the 1950’s and ended in the early 1980’s. If a multi – decade interest rate bull market has begun it could have severe consequences for holders of bond mutual funds. Bond have a maturity date – meaning the bond holder will have their principle returned. Bond mutual funds have no end date and are like a stock. In a falling interest rate environment bond prices rise as will bond mutual funds. In a rising interest rate environment bond prices fall and bond mutual funds will decline. If interest rates rise for several years bond funds could fall 20, 30, or even 50% in value.
In the coming years bond mutual funds could be one of the worst investments. For investors seeking income – purchasing bonds would probably be a much safer strategy.