The bond breakdown is about to get worse, says trader. Here’s how to play it

The bond market is getting slaughtered as the U.S. 10-year yield hits its highest level since July 2011.

The move has TradingAnalysis.com founder Todd Gordon predicting that a key technical pattern is about to be broken.

Looking at a chart of the TLT long-dated treasury ETF, Gordon told CNBC's "Trading Nation" that recent weakness has the chart on the brink on piercing through the bottom of a head-and-shoulders pattern.

— Gordon is specifically talking about a parallel channel that has been taking place for ten years. A head-and-shoulders pattern has appeared that suggests the 20+ Year Treasury ETF (TLT) could be moving toward the bottom end of the channel, as TLT failed to retest and recapture old highs.

— TLT has specifically bounced up time and again from the $115 level before falling back, and now Gordon believes TLT could finally fall below that support level.

— This would essentially put an end to a four-decade downtrend in rates and uptrend in bond prices, according to Gordon.

The trade: Gordon is suggesting buying the September monthly 115 put for $2.14, or $214 per options contract.

Bottom line: Gordon believes the head-and-shoulders pattern in TLT is a bearish signal that could send bonds plummeting and rates soaring.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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