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Remain Short The Bond Markets

Fixed income markets have been in retreat as interest rates rise. As markets rise or fall, the moves typically pause or reverse at certain price levels. This has not occurred in the bond markets. Below, we 30-year bonds monthly from 1981, the starting point of the bond bull. Note that price has fallen through the 50% retracement level at 123. Similar observations can be made about the 10-year notes and foreign bond markets. This is very much like a runaway freight train rolling right through red lights and calls to stop. Or it can be compared to the proverbial hot knife cutting through butter. Concerning the 30-year bond, the 105 price is the next retracement level.

This outlook is confirmed by sentiment. A ratio of put-call open interest is useful in this matter. This number must be interpreted in reverse to that of a put/call ratio. A high reading reflects traders writing puts in the expectation of higher bonds so that may retain the premium income. This number has risen over the last weeks reflecting an increase in optimism. Price has declined despite their positions. This tells us that price must go lower to turn these traders bearish and in line with the falling quotes. Remember, in a bear market, the bears are correct, and the bulls are the contrarians.

US 30-Year Bonds