For several years this blog has highlighted long-dated bonds as the late starters or unfinished business in the current inflationary era.The monthly US Treasury long bond chart's 28 year up channel is getting ready to break. Then there are three consecutive 4 point, expanding, continuation down triangles, the first two of which end below their preceding highs and which is bearish. The end of the third expanding triangle last month was essentially a false break and a Gann double top with the 2003 bond price high. This is a massive top formation!
That's why I have been discussing here and holding for myself very, very, very, short term interest bearing instruments on balance.
Briefly and finally, interest rates are going up and the dollar is going down when the "vacation from inflation" completes in the not too distant future. Both rates and the dollar were already going that way and setting up for a break since 2003. It really has nothing directly to do with the current financial mess. It's all part of the rather well known supply and demand cycle about which I have written here so much. The disinflationary half cycle ended in 2003 at the latest, but Japanese style interest rate policy has held bonds, and other rate vehicles generally outside FED control, in abeyance at the top until now. The current mess will arguably make the outcome more extreme or violent, but it is well to understand this in proper context, not in journalistic and popular fantasies. The desperate reach for yield since 2003 came from artificially low short term interest rates since 1999. This is what led to lower rated mortgage-backed securities, monstrous credit derivatives, and emerging market bond madness. The rest followed naturally.
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