Bond prices SURE to drop because of coming interest rate hikes?

Recently, many retail investors shared with me that interest rates are “sure” to go up with the US Fed increasing interest rates in Sept and Dec.

Well, I am not so “sure”.

A few of my clients forwarded a 20 Aug business times article on bond yield. I thought its an interesting read. The author is an investment analyst with Phillip Securities. Here is the link:

For the uninitiated, when the author described the head and shoulders pattern, he was describing bond yield chart. When he mentioned net shorts in the market, he meant net shorts on bond prices, not bond yield.

Summarizing the article,

  • the speculators are net short US Treasuries bond prices at unprecedented levels.
  • historically, whenever speculators are positioned on the same side at record levels, the opposite tends to happen.
  • the author speculates that the 10Y US treasuries yield to trade lower to 2.5% (now 2.84%).

For, one thing is for “sure”, there is no such thing as free lunch in the market.

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