The bond market is bracing for further turbulence as technical indicators suggest that 30-year Treasury yields could climb another 50 basis points. According to Elliott wave theory, the 30-year Treasury is entering wave 3, typically the longest and most extended phase, indicating a potential continuation of the selloff. Mean reversion theory also supports this outlook, suggesting yields could rise to 5.4%, which is the second standard deviation above the one-year average closing price. This increase in yields reflects investor demand for higher returns on long-term debt, often signaling inflation concerns.
Rising yields on 30-year Treasuries generally lead to declining bond prices, which can trigger a broader bond market selloff. As yields climb, fixed-income securities become more attractive compared to equities, potentially redirecting investment flows from stocks to bonds. This shift could increase borrowing costs for businesses and consumers, potentially slowing economic growth and impacting corporate profits. Next week's inflation data, including PPI, CPI, and import/export prices, could further influence Treasury yields, as higher inflation expectations typically lead to higher yields and lower bond prices.
The iShares 20+ Year Treasury Bond ETF (TLT), which tracks long-term U.S. Treasury bonds, is currently trading at $85.47 as of 09:42 on January 10, down from its last close of $86.03. The ETF has reached an intraday low of $85.16, marking a new 52-week low, as investors react to the potential for rising yields and the implications for the bond market.