U.S. Treasury Bond Market Forecast 2009

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

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 .

Nadeem Walayat

Market Oracle.com.uk

Nadeem Walayat is the editor of MarketOracle.co.uk.and has over 20 years experience in trading and investing.