The END of the 32-Year Bond Bull Market!

Bid farewell to the bond market bull run, because it has entered a phase not seen in last 32 years - a rising rates cycle!


Over an ultra-long term view, both the short-term and long-term interest rates are at a all-time historical low for the last 5000 years, especilly so after Federal Reserve and fellow central banks have carried out massive Quantitative Easing (QE) because of the 2008 Global Financial Crisis (GFC).


In term of Cycle Analysis (CA), there exists a 64-year interest rate cycle, typically interest rate will trend up/down for 32 years before TURNING down/up for the next 32 years to make up 1 full cycle.


U.S. 10-Year Treasury Note is used generally as a benchmark to set as a borrowing cost for mortgage rate worldwide. A raise in the borrowing rates would indicate a forthcoming rising cost for all property buyers and hence all those sitting on loans. Let's take a look at the U.S. 10-Year Treasury yield (take note: as bond price increase, its yield will decrease and vice versa). Since hitting an all-time of 15.84% in September 1981, it has been steadily declining. It has broken several long-term downtrend lines, hit a first low at 1.43% in July 2012 (right on cue with the 64–year interest cycle low) and subsequently a second low of 1.36% in July 2016. Since then, the yield on the 10-year Treasury Note has rallied to hit a year high of 2.94% in February this year and has been trying to penetrate the 3% critical level but till now has not been able to do so convincingly.

A decisive move above 3% looks likely as soon as this quarter, especially as expectations rise that the Federal Reserve will need to urgently address the imploding Pension Fund Crisis and be aggressive about containing inflation. At least another 2 increases to the federal funds rate are expected for the remaining of this year, the first hike for 2018 happened in March. The likelihood of higher interest rates this year has grown as rising prices return to the economy and the benefits of tax cuts feed into the system. A convincing cross above 3% will mean that a new rising rate cycle is in place, introducing a whole new class of investors to rising rates.

As for those investors who are worried that a rising rate cycle will put a snag in the stock bull run, this is NOT likely at this point in time as markets can still rise along with an uptrend in interest rates up to a certain point, PROBABLY around 4%-5% in the U.S. 10-Year Treasury Yield before this aging 9-year U.S. stock market bull run is finally over as higher interest rates will lead to piling borrowing cost across the markets and this will result in the further implosion of Sovereign Debt Crisis (SDC) in Europe, Japan and later on U.S.

P.S.:

Remember those days when interest rate was 6%-8.5% 30 plus years ago and it is now at a pathetic 0.05%-0.1%.

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