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Bonds: Don’t Forget the Long-Term Trend

Many of the forecasts I hear regarding bonds seem to be based upon what bonds have done for most of the last 40 years without acknowledging what has happened more recently. The chart below shows that 30-Year T-Bonds were in a rising trend from the 1982 low, but in early-2020 they made a long-term top, and began trending downward. That down trend lasted long enough for price to violate the rising trend line, which is strong evidence that the long-term trend has now shifted downward. Technically, we should expect that this down trend will continue for a long time, probably decades.

The problem with long-term charts is that we get to review huge segments of time without experiencing the tedium of the normal real-time market ebb and flow. For example, while the price trend from 1982 was primarily up, there were periods of a year or more when price moved down or sideways, so in spite of the dominant down trend, it is likely that bonds will rally soon, and that the rally may last for quite a while. When that happens, I caution against assuming that the long-term trend is changing to up. Maybe it is, but it probably isn’t.

Conclusion: It is hard for people to abandon investment techniques that have mostly worked for 40 years, but it is clear that the paradigm has shifted, and that a new approach is necessary.

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