About Me

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 !!!

Saturday, August 18, 2012

Treasury Bond Market

Longer dated Treasury yields have jumped up sharply since late July. The 10 year yield is now
up right at prior support and the surge is close to breaking the downtrend line in place since Feb.
2011. The cyclical fundamentals I watch most closely to track the Treasury market are either
basing out after a decline or are up slightly since June. In either case, the run up in yields is too
sharp to be supported by the fundamentals. Investment grade corporate bond yields are also now
moving up in sympathy. 10 Year Treas Chart With Industrial Metals Comp. & SPX

Bond market players for now apparently see the odds of further QE by the Fed as rising as we
get closer to the end of Aug. when the Fed holds its big economics / financial markets confab at
venerable Jackson Hole, WY. You can also see this in credit quality spreads which are narrowing
as players are more reluctant to sell out higher yielding, lesser quality paper. And, there is
likely some rotation out of very low yielding Treasuries into equities, where the SPX yields 40
basis point above the ten year and sports an earnings yield of 7.1%. So, this move out of
Treasuries is developing into a strong bet on a substantive QE program that is seen by the bond
guys as likely far more attractive for riskier securities. And, I think at this point, without copious
liquidity largesse in the system, riskier securities such as stocks and commodities would need
heavy continued rotation out of Treasuries to support more sustained advances.

New rounds of QE from the Fed and ECB (Draghi to speak at Jackson Hole) could further
significantly damage the Treasury and premier corporate bond markets if new QE actually is in
the cards for the Sep. '12 and beyond period.

But, let's check short term first as we have both the SPX and TNX yield at critical resistance
levels.

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