Interest Rates Turning Up? Editor: US Treasury bond yields peaked in 1981 and then fell for around three decades. However, thanks to the view that the US economy is “healing”, investors have begun to sell “safe haven” assets such as US bonds and move into stocks. As a result, on Friday the yield on the benchmark 10-year Treasury note touched an 11-month high of 2.086%. The latest rise in bond yields was triggered by a better than expected employment report that showed that the US economy added 236,000 jobs in the month of February. What most analysts, and almost every news source, failed to report however, is the fact that the labor force participation rate has fallen to the lowest level since 1981. It’s now just 64.3%. This is significant since those who have not actively searched for work in the past 12 months, i.e. they have given up looking for a job, are not counted as being unemployed and simply disappear from the labor force. The official unemployment rate (the U3 figure) is now 7.7%, but the U6 figure, which includes those who have not looked for work in the past 12 months, and those working only part-time, is actually 14.3%.

Based upon very long-term charts and commentary from Hoisington Investment Management Company, for some time we have speculated that the 30-year bond rate would continue downward to around 2%. However, the charts are showing strong technical evidence that interest rates may be turning up in the long term.

The monthly chart below shows bond rates going back to 1948, at which time long bond rates were about 2%. After the 1981 peak, rates have trended downward toward, we assumed, the historical low. Now it appears that the bottom is in and that rates are heading higher.

Note that the monthly PMO has turned up from its second most oversold level in 50 years, and has crossed up through its 10-EMA, rendering a PMO buy signal.

Zooming in on a 23-year monthly chart we can see a long-term double bottom (2008 and 2012). This compares with the lower PMO low, which sets up a reversal divergence (bullish). We can also see that yield has broken above a declining tops line drawn from the 2011 top, confirming the double bottom. The most important thing that needs to happen next is for yield to break above the declining tops line drawn from the 1994 top.


To answer the question raised in the title of this article, yes, we think that interest rates are making a long-term turn to the upside. The long-term double bottom in yield, plus the monthly PMO bottom and upside crossover are very significant events, indicating that a long-term bottom is in place. If rates do continue to rise, that will have an extremely negative effect on just about everything.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>