[Ed. note: Albie Shamess, an astute observer of the interest rate markets, sent us a long-term perspective. I've added a couple of lines and commentary. - Vikram] For a technical trader like me, it’s pretty obvious that notes and bonds are due for an upward correction to a Fibonacci level. Treasury notes have broken above one trendline and the 3.5 to 3.75% area, the level of the previous top inflection, seems a likely target by winter. The market has been dropping and retracing in a series of neat, almost picture-perfect Fibonacci scales. It remembers how to climb back up that staircase.
You’ve probably heard a lot of news and discussion about the market’s reaction to the coming taper, a reduction in bond buying by the Fed. This is one instance when technical traders like me would say, the market has already decided its reaction and priced it in. Last summer’s low inflection was a clear turning point.
Whether you consider yourself a fundamental trader or a technical trader, whether you look at charts or commentary about new home sales and mortgages or try to read between the lines of the latest speech by a Fed governor, keep an eye on history. The past is prologue, and this chart tells a clear story to people like our friend who sent this chart: Treasuries are going up.