Best Financial Markets Analysis Article The explosive long T-bond rally of November and December 2008 following deep U.S. interest rate cuts towards ZERO appears to have come to an end as treasury bonds broke below the most recent low. Therefore this analysis seeks to determine if the bond bubble is about to burst and how bonds could trend during the next 5 months of 2009.

TREND ANALYSIS - Treasury bonds spiked higher on breakout of a well established trading range between 122 and 112. The break below the previous low of 132 threatens a retracement of the whole move back into the 122-112 zone. The Initial target for the decline is the upper end of the range i.e. 120 to 122.

MACD - MACD has reversed strongly from extremely overbought condition and suggests that bonds could decline towards extremely oversold conditions, which supports the view of a decline towards 120.

SEASONAL TREND - The November / December rally is inline with the seasonal tendency for T-bonds, which is usually followed by a bearish trend from February to April. This suggests there may be a delay in the bond market rally after the initial sell off.

ELLIOTT WAVE THEORY - Elliott wave suggests that a significant correction is underway that is correcting the whole move from 105 to 142. The initial target for which is 38.2% at 128. With the more probably 61.8% correction targeting a move to 119, and therefore confirms trend analysis expectations.

U.S. Treasury Long Bond Forecast 2009 Conclusion

U.S. Bonds Forecast 2009

The U.S. Bond bubble is bursting (temporarily?) at this time there is a high probability of bonds declining back into the 119-120 range. Beyond that there are expectations of a corrective rally, which suggests a 61.8% retracement of the decline eventually back into the 130 region as the above graph illustrates.

30 Year U.S. Treasury Bond Forecast - Targeting Swift decline to 120 - 80% Confidence; Recovery into Mid 2009 targeting 130 - 65% Confidence

This analysis forms part of my in-depth analysis and forecasts on a range of financial markets for 2009, to receive the complete forecast to be published shortly in your email inbox subscribe to my always free newsletter .

By Nadeem Walayat
http://www.marketoracle.co.uk

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

ker
03 Feb 09, 08:10

Elliott Wave

This is all complete wrong.

First, the 3rd wave can't be the shortest. Where you have '4' label it is '2' label, and when you have '3' it is 'B', recount it. Second TBOND major support resistances trade range of 25 points and it just broke to the next level, the support is 125, and they are going to be at 150 in february/march, and the stock market make another low, at that time, you might consider the bubble bursting

Nadeem_Walayat
03 Feb 09, 09:07

No Elliott Wave Tennants
Theres the flaw in most ellioticians interpretation of EW. In that there ARE NO TENNANTS ! Markets Behave differently and you have to go with that behaviour rather than whats written in a book. Ironically, something similar occured back in Jan 2007 i.e. to ignore EW tenants and go with the way the market actually behaves. Gold Bull Market set to resume Where the market behaviour elliott wave count confirmed a bull market from $627 to $920 that came to pass. I guess we will find out if by the end of Feb / Start of March whether T-Bonds are closer to 120 or 150 as you state, I know which one I am betting on ;)

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