The long Treasury yield made an all time historic low in early July, 2016. As discussed since then,
this probably will rank in the very low end of Treasury yields going forward. Yields are being
pushed up by a mild acceleration of inflation which appears headed up to 2.0% yr/yr as well as
by speculation that the world's central banks are tiring of providing super accommodative
monetary policy. More specifically, Fedspeak has been threatening to raise the Fed Funds rate
in the near future. $TYX
Despite the recent corrective uptrend in yield, the Long Guy has just reached the downtrend line
in place since late 2013 and has only recently crossed its 40 wk. m/a. So, a critical test lies ahead.
Note too, that crosses in yield above or below the 40 wk. m/a tend to be consequential.
The bond price tends to get oversold for the intermediate term when the 52 wk. rate of change
in yield gets up +20%. I would also note that tougher dealer capital requirements and more
trader interest in this market have made it more volatile, and the rate of change in yield can now
go to plus or minus 40% on a 52 wk. basis. This means yield trend can be very much stronger
than in years gone by.
As a final point, a horizontal line has been set at 3.40% to signify where the long Treasury yield
would have to travel up to to signal that the decades' long bull market in the Long Guy might
be coming to an end. To get there, faster inflation would be in order as would more tightening
by the Fed.
- 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 !!!