As the commercials say: wait! There's more! ZeroHedge reports all major bond prices are up: the 10 year bond has hit a 25 month high, and:
10Y rates tagged 2.89% and 30Y 3.90% all pushing back to the pre-US-downgrade (debt-ceiling) levels of summer 2011. The 10Y yield has just joined the 30Y trading wider than they did when stocks hit their lows in March 2009. ...As I've said here before, because most everyone says it, nothing will collapse the US faster than interest rates going up much higher. This raises the interest on our debt, raising the percentage of GDP that we spend on debt service, and squeezing off every other target they want to spent money on. A bit earlier in the day, when 10Y rates were 2.873, ZeroHedge wrote a piece with some "inside baseball"comments on the Fed and the departure of Bernanke. Interesting reading.
and for some context... 10s and 30s are now higher in yield from the March 2009 lows while 5Y and 7Y remin 26bps lower (for now)...
Why would bond sales go down? There are many reasons, not the least of which is that bond buyers realize that they might not be getting a fair yield for the inflation they see in the US; not enough yield for the risk they're taking. Seeking Alpha reports buyers might be upset about the prospect of "tapering" by the Fed (turning off the printing press) - that could include thinking if the money pump gets shut off, bad things will follow and they surely won't get anything for their bonds.
As I poke my head out of my secret bunker of solitude, one hand lifting the manhole-like cover, an Uzi clenched tightly in the other, I have to say it looks riskier than usual out there. Time for me to retreat back into the bunker, have some leftover pizza, and try to figure out ways to survive.
Note that were setting up for a classic "head and shoulders" move in the markets. Its easier to see on the NASDAQ or S&P indicies.
ReplyDeleteThe support level for the low off the 2nd shoulder is determined by the line drawn between the two low points. If the technical proceeds apace, we could be headed south by EOY or even shortly before the holiday season.
For a good example of a classic head and shoulders pattern, see the S&P from Mar'07 to Jan'08. Left shoulder is in mid-July, head is in mid-Oct, and right shoulder is early-Dec. The neckline was broken right around New Years, just as the bottom fell out.
Now want to shit your pants? Look at any of the major indicies between about '94 and today. We were set up for a MASSIVE head and shoulders technical that was tested several times between '09-'12. Guess what happened when we started on that path? QE.
Now, weve technically broken the 'meta' head and shoulders pattern as of Q1 this year. Suddenly, the Bernank is leaving the Fed and announces an end to QE.
Oh and the lower support target for the 'meta' head and shoulders? Well I won't spoil the fun, but Karl Derringer has a preview as his banner over at his blog...
Financial Semantic Nazi here - Bond prices move inverse to yields, so when yields go UP, prices go DOWN.
ReplyDeleteThus, the link title "ZeroHedge reports all major bond prices are up" should either read "...all major bond yields are up" or "...all major bond prices are down".
Yours in exactitude - FSN
Hmmm. You are, of course, completely right. It's the bond yields, interest rates, that are up.
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