The first try at a sustainable cyclical run-up in yield started in Half 2
2009. It was aborted in recent months as cycle growth measures and
inflation pressures eased, thus postponing any move by the Fed to
tighten credit overtly via raising benchmark short rates. The recent
downdraft in the bond's yield conforms perfectly with my monthly
broad macro economic yield indicator(data through June). Now, the
weekly cyclical pressure gauges I follow have started to level out
after falling sharply over May and most of June. This suggests the
long Treasury yield may stabilize around 4.0% as players assess
whether the weekly data could be signaling that the economy is set
to show more stability (See chart which compares the $TYX with
GS's industrial metals index.)
The long guy's yield is well inside its 40 wk m/a. This indicates an
overbought condition. My long term technical and fundamental
indicators also suggest the bond is currently overbought. Trader
advisories are also moving into the "too bullish" camp.
Fed chair Bernanke says the economic outlook is "unusually
uncertain" right ahead, so it is doubtful the Fed is going to
get fired up to raise short rates soon. However, the bond market
can easily trade plus or minus 50 basis points as players read
the weekly economic tea leaves over July and August.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!