We Are In The First Inning Of A Bond Bear Market As The iShares 20 Plus Year Treasury Bond ETF (NASDAQ: TLT) Fades – Mike Swanson (02/17/2021)

We are in the first inning now of a bond bear market and people are recognizing the fact that bonds are going down and yields are slowly going up. They aren’t saying it’s a bond bear market, but suddenly everyone is noticing what is happening with long-term bond yields. Yesterday the story made it past the financial media to enter the mainstream media, such as websites like Axios, which had a story Tuesday with the title Investors’ inflation expectations are pushing up borrowing costs.

Of course bond ETF’s such as TLT and BND have been slowly declining now for months. This downtrend is nothing new, it just has happened so slowly that few noticed it. Back a few weeks ago I did a post about this important development titled There Is One Giant Market Trend No One Is Talking About That Will Impact You That Is Starting Now. I believe what we are seeing is a secular low in bond yields behind us in 2020 that will be just as important as the last secular top in the 1980-1981 period proved to be!

The Axios site is correct in suggesting that inflation worries are behind rising yields. We’re seeing many commodities come alive and yesterday shipping stocks really took off, going up even faster than energy stocks did.

The TLT Treasury bond ETF dumped hard to fall now 10% away from it’s 200-day day moving average. TLT goes down when 20-year bond yields rise, because bonds and yields move opposite to one another.

What is important to realize is when you are in the first inning of a bear market everyone notices a market move off of the high, but few worry about it and even fewer say its a bear market. That’s because neither the mainstream media nor the masses have a definition of what a bull or bear market is so they don’t think in terms of market cycles, but instead just in big gains or big losses, which come deep in a cycle when it is too late.

I define a bear market as one in which the long-term trend is down. This happens when a market trades below its 150 and 200-day moving averages and they slope down and act as resistance. This is simple stage analysis and is now happening with TLT.

Stage analysis is a concept I cover in my book Strategic Stock Trading.

If people recognized that bonds were in a bear market then they would be selling out of their “safe” bond funds, but few are doing that. People just aren’t worried and that’s how they are in the first inning of a bear market.

It’s also why the bond bear market is not causing people to sell out of stocks. They just don’t think it means anything and is just something in the news just happening not to think about.

It’s only later in a bear market that people worry.

From a psychological perspective, we hit the “New Paradigm” peak of the secular bull market in bonds last year in March when the Fed announced it was ready for unlimited QE as the stock market crashed. Concepts such as “Modern Monetary Theory” are also evidence of a belief in a new paradigm.

(BTW oil hit the despair bottom phase last year when oil futures went negative, gold did in early 2016, and the stock market in Turkey did it last October)

However, we are indeed only coming off of a high and haven’t gotten to the “Bull Trap” or “Return To Normal” rally that comes after the first inning of this bond bear market That will probably come around some stock market correction and new “Yield Control” program from the Fed.

To get to the “Bull Trap,” though, you do need the current move down to continue far enough that some panic does come in for a few days. That will probably finally trigger a stock market correction. I talked about bonds and various other topics with David Skarica of addictedtoprofits.net in a video session we did live yesterday at 3:00 PM.

Gold is still going sideways and consolidating since its August peak and some are saying that rising bond yields are a reason to sell gold and buy bonds, but in the end it is the implementation of policies such as “yield control” that will make people flee the bond market and park their money into gold as a safe haven. Some did that early last year.

The fact that people aren’t thinking of doing it right now shows that this is simply the first inning of a bond bear market. It is happening too slowly for the masses to even notice it at the moment, especially when stock market gyrations are more mesmerizing to them and stories such as the Gamestop short squeeze capture the news cycle to dominate their minds. As of Tuesday’s close, AMC remains the fourth most owned stock by the most number of Robinhood customers. It was also a short squeeze stock that peaked with Gamestop to crash back to earth.

I started something new this week and that is I am opening up my daily morning posts at the bottom for comments. My goal is to make this a water cooler type spot where we can talk about the markets together and share ideas. Check it out. If you got any questions or comments just scroll on down to the bottom of this post. It’s fun.

-Mike



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