Get Back in Your Hole!

None other than Henry "Hank" Paulson popped his head seemingly out of nowhere (he runs a Chicago-based think tank these days) to opine that a "vicious" bond market crash is coming.

Paulson, as you know, was Treasury Secretary in 2008 during the heart of the Global Financial Crisis. While he has largely been out of the spotlight ever since, this headline is interesting timing given that part of his think tank focuses on U.S.-China relations.

In other words, might China be dumping U.S. Treasuries more aggressively? Paulson's wording was strong, especially for someone who became entangled with government interventions during the GFC, picking and choosing winners and losers, essentially (i.e. bailing out some banks but letting Lehman fail). Paulson could have easily played it safe in terms of his vernacular. Instead, he made a bold statement. 

As you know, I continue to be a multi-year bond bear, which means I expect higher rates. TLT is an ETF essentially reflecting prices on the longer end of the curve, tracking inversely to rates. 

On the TLT daily chart, first below, the recent bounce on optimism for both the end of the Iran War and inflation receding looks to be nothing more than a bear flag, ripe to set up the next leg down (which means the next leg up on, say, the 10-Year Note). 

On the TLT monthly chart, second below, I still see exactly no hard technical evidence of a long-term bottom. I also have not seen anything close to capitulation by bond bulls.

And that leads me to believe that ol' Hank Paulson is onto something here--I agree a vicious crash in the bond market is a significant risk. Also note the descending triangle pattern on the monthly chart, which is often a bearish continuation pattern in the context of a prior established downtrend.