It’s patriotic. No, seriously, I really like the 10-year note here. Today’s much talked about auction had the highest bid to cover ratio of any since mid-2007 according to Bloomberg, with plenty of interest from overseas investors. 4% is a pretty darned good yield considering that Case-Shiller CPI is running at negative 5%. 9% is a good yield in any security, let alone Treasuries in a depression.
Technically, I like this chart. Yields have now corrected the overshoot to the downside that we saw in December, but have not broken out so far that you could say the Treasury bull market is over:
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I don’t know what inflation will be 10 years from now, or even the stability of the world’s fiat currency regime, but from a trading point of view, I suspect that dollar and inflation fears have run their course for this round. Traders seem to have forgotten that for the growing ranks of individuals who have lost their jobs but not their debt, or for businesses experiencing month after month of losses, cash is most definitely not trash.
As I said last Friday, I think we are at a turning point where various assets are peaking or bottoming more or less in synch. Gold, silver, the euro and pound may have printed their highs last week, while we are still waiting for oil and bonds to make a reversal. If all of these assets do actually turn, I would be highly surprised if the equities markets didn’t follow suit.
It’s probably OK as a (very) short term trade, but if you are considering buy-and-hope…er…hold, forget it. It’s probably one of the WORST investments you are going to make over your presumably short trading/investing career. 10 year treasury yields have made the “Golden Cross’ to the upside which means a sustained uptrend for at least some time to come, and the dollar has made the same to the downside. In addition if you look at the double top on the dollar chart, there is a MASSIVE bearish divergence. The technicals look EXTREMELY weak.
I meant massive bearish divergence with both RSI and MACD.
Even if December marked the absolute lows in long-term yields for this cycle, there’s no reason that bonds couldn’t trade in a range for many years to come as the opposing forces of debt deflation and deficit-spending-via-Fed-monetization vie for dominance.
The “double top” on the dollar chart is nicely sandwiched between a developing double bottom that traces out a much stronger bullish divergence. Being long the dollar, even aggressively so, is an attractive trade over at least the next few months as the “relation trade” and the hyperinflation chorus recently holding court in the Bloomberg headlines should be called into question.