Bond Market, The Most Dangerous Bubble of All

Why the Bond Market Is Undeniably a Bubble

The most obvious, telltale sign of a bubble is when asset prices are artificially driven higher by misguided government supports, subsidies, bailouts, or sheer greed and stupidity.
That was certainly the case of the housing bubble.

It was also true for some of the greatest bubbles in history — the Dutch Tulip Mania in the 17th century, the South Sea Bubble of the 18th century, the stock market bubble of the 1920s, plus many others.

And it’s definitely the case here — not only in recent years, but going back for over a decade.

In fact, since the year 2000, one of the most frequently used — and abused — policy tools of the Federal Reserve has been to cut rates and artificially bubble up bond prices.

    * The Fed cut interest rates and supported bond prices to fight the technology bust, the 9/11 aftermath, the housing bust, the mortgage meltdown, the credit crunch, and the debt crisis.
    * The Fed did it again to help avert deflation, debt defaults, and other disasters. And …
    * The Fed is still trying to do it AGAIN now, but with a big difference: Its bond-market buying binge is finally starting to backfire.

Dr. Weiss began his career in 1971 when he founded Weiss Research, dedicated to evaluating the safety of financial institutions and investments for consulting clients.  He is the publisher and contributing editor of the financial newsletter, Safe Money, known for its track record in picking major turns in interest rates, and serves as co-editor for a number of Premium Services. He is also the author of The Ultimate Safe Money Guide and The Ultimate Depression Survival Guide.

http://www.moneyandmarkets.com/the-most-dangerous-bubble-of-all-42612

Bills Yielding Zero as Stocks Soar Make 1938 Moment

(Bloomberg) -- For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate -- a divergence in U.S. financial markets that might be perilous if Federal Reserve Chairman Ben S. Bernanke didn’t know all about 1938. That’s when the Standard & Poor’s 500 Index climbed 25 percent even as bill rates tumbled to 0.05 percent from 0.45 percent. As 1939 began, stocks began a three-year, 34 percent decline after the Fed increased borrowing costs prematurely to stymie inflation that never materialized.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDDo.iC72ANY

Credit Rally May Stall as Greed Causes ‘Froth,’ StanChart Says

(Bloomberg) -- The credit rally that has pushed up Asian corporate bonds, handing investors a record 19.6 percent return this year, may be overdone, according to Standard Chartered Plc. “It has all gone too far too fast,” said Vijay Chander, head of credit strategy at Standard Chartered in Hong Kong. “From total Armageddon, markets are almost pricing in total perfection in a year.”

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAQqibOcd7Bk

Indonesia’s Bond Rally May Fizzle as Rate Cuts End

(Bloomberg) -- A rally in Indonesian bonds, the best-performers in Asia this year, may end in coming months as the central bank halts the longest stretch of interest-rate cuts since 2007, Citigroup Inc. and HSBC Holdings Plc said. The government’s forecast that inflation will pick up and increased borrowing to fund economic stimulus spending are bearish signs for the nation’s debt, Manish Bhai, the head of markets at Citigroup’s Citibank unit in Jakarta, said in an interview yesterday. Policy makers will start to raise rates in 2010 as inflation quickens, HSBC said.

Bank Indonesia will keep its benchmark rate at 6.5 percent at a meeting tomorrow after lowering it three percentage points since December, according to 28 of 31 analysts in a Bloomberg News survey. The reductions helped spark a rally in the nation’s local-currency bonds, which returned 15 percent so far in 2009. Philippine bonds returned 5.8 percent, the second-best among 10 regional indexes compiled by HSBC.“Further upside in Indonesian bonds is limited,” said Citigroup’s Bhai, who forecasts the central bank will hold rates tomorrow. I’m a “bit bearish from the third quarter,” he said. The benchmark 11.25 percent note due May 2014 yielded 9.6 percent and 11.5 percent debt maturing September 2019 reached 10.6 percent, according to closing prices at the Inter Dealer Market Association. The yields will end the year at least 9.5 percent and 10.5 percent, respectively, according to Citigroup. The 10-year yield may fall only to 10 percent, HSBC said.

Inflation Risk
Consumer-price gains may accelerate to more than 5 percent next year compared with a 2009 target of as low as 4.5 percent, Finance Minister Sri Mulyani Indrawati said in Jakarta on Aug. 24. The annual rate was 2.75 percent in August. Further cuts in borrowing costs may be unwarranted as inflation gathers pace, the central bank said on Aug. 5.Indonesia intends to sell 150 trillion rupiah ($14.8 billion) of bonds next year compared with 145.5 trillion rupiah this year, according to data from the Finance Ministry.

The 10-year bond yield could fall to as low as 10.1 percent by December as a recovery in the global economy may spur international investors to look for higher yields, said Ariawan, an analyst in Jakarta at Trimegah Securities, Indonesia’s largest publicly listed brokerage. He goes by only one name. Indonesia’s debt will also advance as the government has already sold about 87 percent of its target issuance of bonds this year, Ariawan said.“The supply pressure is down,” he said. “There’s room for yields to go down until the end of the year.”

Bond Return
Overseas holdings of Indonesia’s bonds reached 90.87 trillion rupiah as of Sept. 1 compared with 87.61 trillion rupiah in December, according to the Web site of the Ministry of Finance.The outlook for a pick-up in inflation and higher borrowing costs will “negatively affect returns on bond tenors beyond 10 years,” said Pieter van der Schaft, head of Asian interest-rate strategy in Hong Kong at HSBC, Europe’s biggest bank. Even so, “there’s offshore interest in the bonds right now. There is scope for modest further yield declines,” he said.

Chart US Treasuries - 10 yr, 20yr, 30yr

You will notice on both the daily and monthly charts, the low angle uptrends are intact and very well defined. On the daily charts you will notice the 45 degree angle downtrends have all been broken and on the 20yr chart there is a bullish volume profile as well. Treasury prices appear to be factoring in a fall in equities and initially I would be expecting an inverse relationship to prevail for the time being - as long as a certain amount of trust remains in the USD. That relationship does not extend to Corporate and Municipal Bonds however, which I expect will move down with equities. Again, as for the USD, the intraday P&F Comex charts are giving a clearer picture of a bullish style accumulation.

Treasury Yield Surge Is Poised to Pause: Technical Analysis

(Bloomberg) -- The biggest weekly surge in Treasury 10-year yields in six years is going to pause, said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., citing trading patterns.Yields will hover near 3.75 percent, versus today’s 3.67 percent, Rupkey said. The level represents a 50 percent retracement of the decline in yields that began in June 2007 and ended at a record low of 2.04 percent in December, he said.

“The bond market rout may not be over, but it looks like it might pause for awhile,” said Rupkey, who is based in New York for the unit of Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank. He sent his comments in an e-mail.
Ten-year yields climbed 37 basis points last week, the most since July 2003. They were as high as 3.89 percent on Aug. 10, the most in two months. The 3.125 percent security due May 2019 was little changed at 95 17/32 as of 11:32 a.m. today in Tokyo.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. Rupkey’s analysis is based on a sequence of numbers identified in the 13th century by Italian mathematician Leonardo da Pisa, known as Fibonacci. Yields need to move past one step in the series for the trend will carry over to the next.

Treasury Yield Gap Set to Shrink, UBS Says: Technical Analysis

(Bloomberg) -- The difference between yields on Treasury 2- and 10-year notes is poised to plunge after falling below 240 basis points on July 31 and dropping out of a range it occupied since May, according to UBS Securities LLC.

“The 240 bps level is critical, as it represents the bottom of a channel as well as the first level of Fibonacci resistance,” Chris Ahrens, the Stamford Connecticut-based head of interest-rate strategy at UBS, wrote today in a note to clients. The firm is one of 18 primary dealers that trade with the Federal Reserve. A basis point is 0.01 percentage point.The move may mean the gap, the so-called yield curve, will shrink to 217 basis points and “lower,” Ahrens wrote. The curve flattened to 236 basis points on July 31, the lowest since May 21, as investors grew more comfortable holding longer-term securities, the value of which is eroded more when consumer prices rise. It was at 244 basis points today after touching 234 basis points.

“Last week’s aggressive flattening move brought it back to the bottom of a channel just in time for the next round of supply, issuance which will be predominantly focused on the long end of the yield curve,” Ahrens wrote.The curve reached a record high of 281 basis points on June 5 and touched this year’s low of 142 on Jan. 2, according to Bloomberg data. It touched 217.59 on May 6.

Treasury Auctions
The Treasury will release on Aug. 5 the amount it intends to raise at its quarterly refunding auctions of 3-, 10- and 30- year debt, to be held on three consecutive days beginning Aug. 11. It will sell $37 billion in three-year notes, $23 billion in 10-year securities and $15 billion in 30-year bonds, according to estimates from Wrightson ICAP LLC, a Jersey City, New Jersey- based research firm that specializes in government finance.Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A failure to break through one level indicates the security may move to test the next.Technical analysts study patterns in charts to predict future moves. Resistance and support levels indicate areas where orders to buy or sell the securities may be placed.

Treasury Yields to Fall, Fibonacci Signals: Technical Analysis

(Bloomberg) -- Ten-year Treasury yields are likely to decline, paring their biggest weekly increase in more than a month, a technical indicator suggests. Yields may fall to 3.43 percent this week after they failed on July 20 to break above 3.72 percent, a figure that represents a key threshold based on the Fibonacci sequence of numbers, said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-biggest bank.The 3.72 percent yield marks a 61.8 percent retracement of the decline from an eight-month high of 4 percent on June 11 to a two-month low of 3.26 percent on July 13.

“The yield is likely to fall a bit further this week,” Oh’e said. “It may reach the next support level” of 3.43 percent, which is the 23.6 percent retracement level, he said.The 10-year yield was unchanged at 3.48 percent as of 9:05 a.m. in Tokyo, according to BGCantor Market Data. It fell 12 basis points, or 0.12 percentage point, in New York yesterday.Yields jumped 34 basis points last week, the biggest increase since the five days ended June 5.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates yields may move to the next stage. Levels used in the analysis are based on a sequence identified in the 13th century by Italian mathematician Leonardo da Pisa.

US Treasury Bear is Back

By: Frederic_Simons

InvestorEducation
Best Financial Markets Analysis ArticleIn our last update for the US Treasury Bonds (click here to view), one could observe a strong uptrend in prices.This picture has changed during the last two days as prices have come down significantly, and important price levels have been penetrated to the downside. The line of least resistance has turned to the downside for now. You can see on the following charts that if the price trades for 2 consecutive bars above the green line, rising prices are to be expected. Once the price trades for 2 bars below the red line, you should prepare for falling prices.
After trading below the red line, the 180min Chart on 30 year US Treasuries has turned bearish:

Naturally, the shorter term 3666 Tick chart is also bearish. It would take prices trading above the green line at currently 120'24 to turn the shorter term chart bullish again.

Treasury 30-Year Bond Yield Trend Is Lower: Technical Analysis

(Bloomberg) -- Yields on 30-year Treasury bonds will extend a “short-term trend” lower that began last month, according to a Citigroup Inc. report citing technical indicators. The yield on the 30-year bond has fallen about 0.62 percentage points since reaching the high for the year of 4.84 percent on June 11, the day the government auctioned $11 billion of 30-year debt. The yield was little changed at 4.20 percent today, after touching 4.3 percent on July 10.“Having re-tested the 55-day moving average, now at 4.34 percent, the market posted a bearish engulfing day on Friday on the yield chart suggesting the short-term trend is still down,” Citigroup analysts including Tom Fitzpatrick in New York wrote today in a report. “Further falls in yields toward the head and shoulders target at 3.94 percent and then the 200-day moving average at 3.77 percent” are possible, they wrote.

The 30-year yield began a slide after the June 11 auction, as the higher yields lured robust demand. Indirect bidders, a class of investors that includes foreign central banks, bought the biggest percentage of so-called long bonds at an auction since the Treasury reintroduced the 30-year security in 2006. Bond yields have fallen the last four weeks as expectations for a U.S. economic recovery this year waned.Moving averages are used to identify trends and find support or resistance. Yield support is a level where sell orders may be clustered and yield resistance is where there may be buy orders. A head and shoulders is formed when the yield makes three consecutive peaks, with the middle being the highest.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

US Treasury Bonds Retracement, But Still Bullish

By: Frederic_Simons

Interest-Rates
Best Financial Markets Analysis ArticleDesperate bond bears got their retracement in the 30 year treasury bond yesterday, as it gave back some of the huge gains of the last days. However, this does not change the bullish picture that can be observed when looking at the short and intermediate term charts. As you might already know, Crossroads FX uses an approach that bases short- and intermediate term trade decisions on the actual behaviour of prices, not on fundamental aspects. So we will rarely ask for any reasons "why" a certain price behaviour persists. Accordingly, we developed a proprietary indicator that identifies the line of least resistance both to the downside and to the upside, and prints them on the chart as a green line (buy line) and a red line (sell line). You can see on the following chart that if the price trades for 2 consecutive bars above the green line, rising prices are to be expected. Once the price trades for 2 bars below the red line, you should prepare for falling prices:
Using this method, a buy signal on the 30year Treasury Bonds was generated on 6/12/09, enabling us to capture the best part of the current uptrend:
As you can see on the 180min chart, there is no compelling reason to become a bond-bear again unless prices trade below 118'10 for 2 consecutive bars.

The shorter term 3666 Tick chart shows that the recent retracement has not yet done any damage to the uptrend, as prices stayed above the red sell line. The current uptrend would be in danger if 2 consecutive price bars would trade below 118'29 for two consecutive bars:
If you look at the 2-year Treasuries, the picture is still very bullish, as evidenced by a retracement that has been pretty small as compared to the 30 year treasuries: As a conclusion, the 2 year and 30 year US Treasury Bonds remain in their current uptrend despite their recent retracements. If you have any questions, please do not hesitate to contact us by writing an email to

U.S. Treasury Bond Market Collapsing Now!

Martin Weiss writes: My mission is to worry so you don’t have to.And I’ve never been more worried than I am right now. At the same time, though, I’m also more excited than ever about your opportunities to grow your wealth.I’m proud of the fact that, for nearly four decades, my company has established a distinguished record as “the first to warn of the dangers and say so unambiguously” (New York Times).And right now, it’s clear that the current dangers are unfolding as we anticipated. Indeed, beginning nearly three years ago, we laid out this scenario in no uncertain terms:

First, we warned you that the mortgage bubble would burst and that most of the banking and real estate sectors would be crushed. It happened.Next, we warned you about the second phase of this crisis: Massive losses in the banking sector and a credit freeze, spreading like wildfire throughout the economy, killing corporate earnings, sending unemployment through the roof. That’s happening now as well.And just over two months ago — in my Safe Money Report and in a white paper I delivered to Congress — we warned that the third and most destructive phase was about to begin:

A Bond Market Fiasco!
We warned that
* The federal deficit would balloon toward $2 trillion and beyond, flooding the market with Treasury offerings …
* Washington’s efforts to bail out giant companies would make global bond investors recoil in horror …
* Treasury bond prices would plunge and interest rates would surge — pure poison to the entire U.S. economy and stock market.

Now, this has happened too!
The Third Phase of This Great Crisis Has Kicked in With a Vengeance …
Treasury-bond prices collapsing! Right now!Just in the past few days …
Moody’s raised serious doubts about the U.S. government’s credit rating.
The manager of the world’s largest bond fund predicted that America’s credit rating could be slashed.Treasury secretary Geithner warned of the dangers of record-shattering government borrowing.And even the Fed, despite all its buying power, was overwhelmed by the avalanche of Treasury bonds being dumped on the market.

Result: Bond prices crashed. Interest rates surged.

A Unique Convergence of Events
If all of these events can tell you anything, it’s that you now have the kind of opportunity that generations of investors could only dream about.You have the ability to read the handwriting on the wall; to know in advance what is most likely to happen next.Treasuries bond prices are already sinking. Long-term interest rates are already rising. Just since December alone, the yield on the 10-year Treasury has soared 50 percent (1.5 times its prior level).

This is the recipe for disaster I’ve been warning you about:
* Even before the interest rate rise, mortgages and consumer loans were already scarce.
* Even before the rate rise, the official, greatly understated unemployment rate was already at 8.9 percent, on its way to 10 percent.
* Even before higher rates, consumers were scared — delaying or cancelling major purchases.
Now, rising interest rates are about to kill what little consumer demand is left in the U.S. economy — a perfect storm for corporate earnings and the U.S. stock market.
It’s time to ask yourself, “If not now, WHEN?”
With the handwriting so clearly on the wall … with America’s credit rating now being called into question … with the disastrous implications so clear for the stock market this summer and for the rest of 2009, you should be asking yourself:
“If I don’t act to seize this opportunity now, how will I feel when these contrarian investments soar in the weeks and months ahead?”
Bottom line: If you haven’t done so already, buy the contrarian investments we’ve been recommending.
Good luck and God bless!

Martin

Bursting Of The Bond Bubble: Not So Fast

By Guy Lerner on May 8, 2009 |
The yield on the 10 year Treasury bond has spiked 10% in the past two weeks, and many are now jumping on the “bonds are the next bubble to burst” bandwagon. I was one of the first to be bearish on Treasury bonds calling for the likelihood of a secular trend change back in December, 2008 and a top in back in February, 2009. Higher Treasury yields are in our future, and it isn’t a matter of if but when.Over the past 6 months in these commentaries, I have highlighted several fundamental dynamics that were sure to keep yields low. Now it appears these concerns are unfounded. One of these fundamental dynamics was continued and unfettered buying of our bonds by sovereign wealth funds.However, this now appears less likely as foreigners (i.e., China) have expressed concern over trends in the dollar and with the USA’s current liabilities. Another dynamic that was sure to keep yields low was the Federal Reserve’s announcement to buy $300 billion in Treasury bonds over the next 6 months. Despite this quantitative easing, yields are higher today than when the Fed invoked the “nuclear option”.

The last reason for lower yields was economic weakness, or rather, it would be unusual for yields to rise during a recession. As discussed in “Maybe The Bond Market Is Right”, yields generally rise well into an economic recovery. However, with the sprouting of “green shoots” and incessant talk of the economy finding a bottom - not recovery - yields are now moving higher. Remember the economy has only stopped going down; growth is somewhere off in the distance down a very bumpy road, and yields are already spiking.So why are yields rising? Simple, it is supply and demand. Having to finance our recovery - or mortgage our future - with the creation of several trillion dollars of debt is causing yields to rise. The government has been flooding the market with new Treasury issues, and investors are demanding higher yields.ut the title of this article suggests that I am not on board with the bursting bond bubble - as in hold on, not so fast. So let me state again: higher Treasury yields are in our future, and it isn’t a matter of if but when. My hesitation comes from the weekly chart of the 10 year Treasury yield shown in figure 1. As you can see, yields are butting up against an 20 month down trend line at the top of a channel, and from a technical perspective I have a hard time seeing yields pierce through these levels so easily.

Figure 1. 10 Year Treasury Yield/ weekly
In particular, if I am expecting stock market weakness - and this would likely be on concerns for sub par growth or some such nonsense - then yields should head lower. With “everyone” expecting the bursting of the bond bubble, I doubt such an event will come so easily or when investors are expecting it.
For the record, the secular trend for higher yields on the 10 year Treasury bond will be confirmed on a monthly close greater than 3.43%. And let me go on record now, and say that this will happen by the end of the third quarter of this year.

Do Bonds Beat Stocks Over the Long Run?

Investors, we are told, demand a risk premium for investing in stocks rather than bonds. Without that extra return, why invest in risky stocks if you can get guaranteed returns in bonds? This week we look at a brilliantly done paper examining whether or not investors have gotten better returns from stocks over the really long run and not just the last ten years, when stocks have wandered in the wilderness. This will not sit well with the buy and hope crowd, but the data is what the data is. Then we look at how bulls are spinning bad news into good and, if we have time, look at how you should analyze GDP numbers. Are we really down 6%? (Short answer: no.) It should make for a very interesting letter.

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U.S. Treasury Bond Yields: Government Intervention Breeds Uncertainty

For many months, I have been tracking US Government 10 year Treasury bonds essentially stating that they have topped out. In my most recent article on Treasury bonds, I stated: "the upside for Treasury bonds is limited, and there is a high degree of certainty that a new secular trend is developing that favors higher yield pressures. "
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US Treasury Bonds As Competitor Safe Haven For Gold

Dogs and cats are mortal enemies in the animal world. In the insect world, ants and termites are mortal enemies. In the financial world, gold and USTreasury Bonds are mortal enemies. They compete for the revered role of safe haven for funds. In today's day and age, with numerous storms, some unprecedented, safe haven is especially valuable. One of the most important jobs for the US Federal Reserve, JPMorgan (its agent), and the US Congress is to create the impression that USTreasurys are indeed not only safe, but beyond reproach and free from any hint of default potential. In recent months, with a failure of many important US-based financial engines, and sharp economic decline, made more complex by mammoth commitments from the USGovt on rescues and stimulus, the pristine image of USTreasurys has suffered from severe tarnish.

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Obama's Bonds and Stocks Bear Market

The Employment Situation? Grim - Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.

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