Bond prices dropped Thursday morning after Wednesday’s Fed statement that no change would be made in interest rate policy, leaving open the chance of rate increases later this year and early next year. The expectation that interest rates would be headed higher is leading to the selling of Treasuries.
This is the upshot of the battle to tame the upward trend of consumer prices: Fed officials say the goal is to reduce its stickiness by targeting a 2% inflation rate. To accomplish this, those in charge of central bank policy believe it’s necessary to maintain higher-than-usual interest rates and for longer periods.
Here’s the daily price chart for the benchmark iShares 20+ Year Treasury Bond exchange traded fund:
The red-circled zone shows where the Thursday morning price dropped to below the previous support level from August at the $92 area. Long-term bonds had been holding above that price during late August and into September. You can see how the 50-day moving average (the blue line) is steadily trending downward.
The monthly price chart for the ETF looks like this:
Although it’s down by more than 2% so far for the week, the price remains above the October, 2022 low. Whether that support level can hold will be the next revealing moment for this chart. Note that the 50-day moving average crossed below the 200-day moving average back in June, 2022 — a definite “heads up” for this market that turned out to be an accurate read.
The monthly chart for this benchmark bond fund is here:
It’s slid beneath the 200-month moving average, not a bullish kind of look. Also, note how the 50-month moving average is now in downtrend mode.
For a different perspective, take a look at the point-and-figure chart:
The benchmark bond ETF seems about to re-test the $90 support level from the mid-2022 low. That might take place should the Fed take interest rates higher later this year and/or early next year. The next support level on this chart is down there at $80 from the mid-2013 low.