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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 !!!

Friday, March 29, 2013

30 Yr. Treasury %

Here is the three year weekly chart for the long Treasury yield %: $TYX

The long bond yield is in historically low ground because:
1. The 91 day T-bill is trading near 0% (ZIRP). Heavy anchor here.   
2. Over the past six months, the yr/yr CPI measured monthly has averaged slightly below
3. The CPI is in a long term downtrend and has become deflation prone. The historical
    320 basis point premium in the CPI over the long Treas. has shrunk considerably as a
     result with this process naturally aided by ongoing ZIRP.
4. Treasury bond and note yields carry a flight to quality discount and there are bids
    under the market from the Fed and retirement funds who need to begin lattering
    maturities to handle upcoming pay out demand as more boomers turn 65.

The 30 yr. Treasury Yield is now working slowly higher because:
1. Industrial commodities prices, which tend to play a major role in determining the long
    T-bond yield's direction in the short term, weakened substantially over much of 2011,
    started basing in 2012, and have drifted modestly higher recently on improved demand.
2. US and global industrial output has undergone a positive degree of acceleration here in
    2013 as major central bank QE programs take hold.

The recent uptrend in the 30 yr. yield is mild and volatile because:
There has been a degree of acceleration in US and global output this year but the momentum
 of both measures is running well below normal levels seen in established economic
expansions. Thus, sensitive materials prices and the long T-bond yield are behaving more
tentatively. A continued acceleration of industrial output would foster higher industrial
commodities prices and likely sharply higher bond yields (and lower bond prices).

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