Let’s discuss the fundamental and technical picture of long-term bonds.
Some believe in technical analysis, others don’t. Those who don’t believe don’t understand it.
The primary use is not to predict anything but to provide decent entry points for trades.
That said, there is generally a default expectation.
The default expectation of a descending triangle is lower, and this is a neatly formed triangle.
10-Year Treasury Note
One can make a case for a symmetrical triangle or a descending triangle but neither is as clean as the lead chart.
However, the 10-year yield and 30-year yield are nearly certain to break the same way. This is further evidence of valid patterns.
The symmetrical pattern is a continuation pattern. But continuing what? The most likely answer is a continuation of the January yield high above 4.75 percent.
The Fundamental Picture
What do the fundamentals suggest?
The Treasury bulls think inflation is improving and the Fed should cut interest rates. The bears will cite the recent Producer Price Index PPI report, adamant inflation is too high. They want the Fed to hold pat or even hike.
The fence sitters like Powell have been saying there is not enough information to do anything.
Certainly, we do not know what Trump will do with tariffs (or anything else), and how the markets will react to that.
For now, the Fed and the markets have bought into the idea that tariffs will not be as bad as once feared.
Fundamentally there is a position for that too. Trump has granted a lot of USMCA exceptions. That’s important because Mexico and Canada are our biggest trading partners.
The Labor Market
My view has been along the lines of “Does the labor market crack before the inflationary aspects of tariffs kick in?”
The Fed sees the labor market as strong, which I find preposterous.
The latest PPI report is very troubling, so how fast do jobs crack?
The technical charts can break either way, but they suggest the labor market concerns override the PPI.
That’s my view at the moment, but we need to see the next jobs report and the next CPI report.
Then, it’s not the reports that matter per se, but rather the market reactions to those reports that matter.
Risks to the Downside
I side with Powell and his newfound belief regarding downside risks to the labor market.
In fact, I have been harping about jobs for quite some time, expecting the negative revisions that happened.
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August 1, 2025: Payroll Disaster, Jobs Rise 73,000 but Massive Negative Revisions
There were 258,000 negative revisions in May and June.
The labor market is much weaker than most economists realize.
For specific details discussion of why we know this. please see QCEW Report Shows Overstatement of Jobs by the BLS is Increasing
Finally, please note that 5 Million People Have Exhausted All Their Unemployment Insurance Benefits
So, will rate cuts fix a weak labor market? We are about to find out, but my answer is no.
The Long-Term View
Everything above addresses the short- to intermediate-term picture. That’s a tradeoff between deteriorating jobs, weakening trade, and tariffs.
Longer-term, US Debt Now Grows by $1 Trillion Every 150 Days.
Tariffs are bringing in more money (unless as Trump now wants to go passes it out). But tariffs bring in money in the worst possible way. They impact small businesses and bottom-level income groups the most.
As implemented, tariffs redistribute money from the poor to the wealthy. They slow trade. Bringing jobs back to the US is expensive and will raise prices.
No one in ether party is doing anything to reduce spending. It’s no wonder Powell is concerned.
Fighting the Last Battle
There is one more piece to the puzzle and that is the Fed’s propensity to fight the last battle.
Powell and the Fed is shellshocked over inflation that got out of hand from 2021-2023.
The Fed will not want to repeat that mistake and that means it will be slower to cut rates than the market is expecting.
This is fundamentally very supportive of lower long-term yields.
If a Trump clone gets his way with big rate cuts, expect the opposite unless the economy takes a big dive.
