Given the surge of inflation we’ve seen this year, which was finally somewhat reflected in last month’s CPI reading, which was the highest in over a decade, I’ve been pretty amazed by the rally that has gone on in Treasury Bonds since March.

I’m old enough to remember that my very first mortgage came with a 10% interest rate.

Yet, government spending and commodity prices were nowhere near the levels we see today.

Somehow, we still have a 30 year Treasury yield below 2%.

This is all central bank manipulation.  A 30 year yield below the level of inflation would’ve been unheard of 30 years ago, yet here we are.

But, I think the next leg down in treasury prices is about to begin, and if those prices break the March lows, look out below.

Last year, after a massive rally at the beginning of the Covid-19 pandemic, the 30 Year Treasury Bond formed a massive top.  Major support was finally broken early this year, which lead to a big sell-off into March.

Since then, in spite of improved economic data, and major inflation, bonds found a way to rally for the last few months.

Based on the weekly stochastics, however, it appears that rally has ended, as the indicator has turned lower, after coming close to the 80 level.

Bear market rallies typically fall short of significantly overbought levels, and this is the case with the bond futures.

Now what we have is a very ominous looking, potential Head and Shoulders Top formation.

If prices break through the neckline I’ve drawn from late 2019 through the March 2021 lows, look out below.

The long term target of a break of that neckline would take prices down to the 115-120 level.

Long term Treasury yields would be approaching 5% by then, and you can bet that would cause massive damage to the economy.

Imagine the Federal Government then having to pay that kind of yield just after passing a massive $3.5 trillion spending bill, which the Senate is now working on.

That has been a major worry of mine since quantitative easing began in 2009 along with all that government stimulus back then.

Now, the government is about to embark on a spending spree that dwarfs all that, while the Federal Reserve has been printing money non-stop.

We’ll see what happens.

If you are worried about the potential for substantially higher interest rates, consider using the futures markets as a hedge.

I would also recommend a trend following type of strategy to exploit any major move that may occur.