Pop Goes The Bond Market

US Treasuries have been a one-way train for the past few months, and it looks like no one other than the Federal Reserve is willing to stand in front of it. China and Japan led an exodus this past June, dumping nearly $41 billion of their combined $2.35 trillion Treasury holdings, accounting for the largest net foreign decline on record (basically neutralizing the Feds bond buying for that month). And with the prospect of less stimulus dominating investors thinking, outflows are likely only going to get bigger. At what point does Bernanke begin to sweat?

TNXMomentum is a dangerous thing, especially when it occurs in a market that’s nearly twice as large as the US equity market (and that’s not even factoring in futures). Last week, the 10-Year Treasury broke and closed above a key technical level: its multi-year downtrend, which goes back to 2007! Clearly bond bulls have lost some faith in Bernanke. Whether the Federal Reserve tapers later this year or in early 2014, it’s obvious the bond market doesn’t care. Investors are set on front-running the inevitable.


10 yearUS Treasury yields have been in a 30-year bull market. Could the FOMC’s recent hawkish statements finally pop the very bubble they created? Stay tuned.

Questions? Comments? Leave me a reply.

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  1. As Bill Gross tweeted a couple days ago: “W/o central bank ck writing we only have ourselves 2sell2″

    Are we finally arriving at the “Wile E. Coyote” moment?

    1. Personally I just think the bond market is pricing in the inevitable. Whether they taper in September, December or in 2014, it’s going to happen. However, if the outflows continue at the pace they are going (emerging markets are selling liquid assets like Treasuries to raise US dollars), then the Fed is going to have a big problem. Even though the US Treasury is borrowing a lot less, who’s going to buy all that supply when the Fed is no longer there? That’s where the fiscal side comes in, they need to raise more revenues. But raising more revenues using the consumer is not going to help the economy. Instead of this Obamacare bullshit, they should start cracking down on corporations and how much tax they pay. Some corporations find loopholes and end up paying just 10% at the end of the year … it’s ridiculous. The country can’t afford Obamacare at the moment, why force it on people? Fiscal policy has to pull up its socks so monetary policy can go back to what it was intended to do. A loss of faith in a central bank would be catastrophic. But because politicians have four year life spans, most of them can careless about the long term. Just print print print and make me look good.

    1. Ohhh you’re talking about the chart. The chart was taken right off of the Federal Reserve site, I just made the title larger. Yes the maturity rate is the yield (like the 10-year yield). It’s odd they call it that. Everyone always refers to it as the bond yield or just the yield.

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