That should just about do it for the Treasury bond bounce.

T-bonds have put on a blistering rally over the past three weeks. The iShares 20+ T-bond ETF (TLT) is up almost 9% since mid-October – which is a remarkable gain for a bond fund.

But all short-term bounces must come to an end.

The longer-term trend must reassert itself. And, in the world of T-bonds, that longer-term trend is down.

Look at this long-term chart of the yield curve…

Regular readers will recognize this chart as showing the difference between the yields on ten-year T-notes and three-month T-bills. The difference is normally a positive number – which makes sense because folks should get paid a higher interest rate for lending their money for a longer time period.

For the past year, however, the yield curve has been inverted – meaning short-term rates have been higher than long-term rates. That is abnormal. It has only happened four other times over the past 40 years.

And the current inversion is the most significant of all of them.

Only two things can happen to fix this condition. Either short-term rates have to come down, or long-term rates have to go up.

The Fed has indicated, repeatedly, that it plans to keep short-term rates “higher for longer.” In other words, short-term rates aren’t coming down. So, the only way this yield curve gets back to a normal condition is for long-term rates to go up.

And higher long-term rates mean lower T-bond prices.

Of course, nothing in the financial markets ever goes straight up or straight down for too long. There are corrections and bounces inside of every long-term trend. And three weeks ago, TLT had sold off so hard for so long that it was due for an oversold bounce.

We wrote about it a few weeks ago, even going so far as to put dotted lines on the TLT chart to project how we thought the bounce would unfold.

Here’s an updated look at that chart…

TLT has climbed all the way back up to its 50-day moving average line. It has worked off the oversold conditions. And it has achieved our short-term price objective.

TLT is up 9% in three weeks. Most Treasury note investors need to wait two years to make that sort of return.

Now though, it’s time to sell.

Sure, TLT could rally a bit more from here. Anything can happen in the short term. But the long-term trend is lower. And that long-term trend could reassert itself at any moment.

Best regards and good trading,

Jeff Clark

Are you watching TLT?

Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.