Bonds & Interest Rates

Red Alert: 10-Year Yields Move into Overbought Territory

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Posted by Bob Hoye & Ross Clark - Institutional Advisors

on Thursday, 15 February 2018 12:56

Dead right on rising Bond interest rates have been Bob Hoye & Ross Clark of Institutional Advisors. From their alert at July 2016 yields have risen from 1.8 to yesterday's close of 2.91%, a big move as you can see below. But that's not all. Read this report for what is expected after the overbought situation cools down - Robert Zurrer for Money Talks


Red Alert: 10-Year Yields Move into Overbought Territory

The rise in Treasury Bond yields that started following our signal in July 2016 has come in two waves. The first produced overbought readings into December 2016 and was followed by a drift lower through September. Since then they have moved higher, gaining momentum in the last five weeks as 10-Year yields reached 2.8%. This has produced overbought Exhaustion Alerts and Sequential 9 Sell Setups in the daily and weekly charts. Such ‘Signs of Strength’ coming out of a consolidation pattern are generally confirmation of a breakout. If minor corrections of one to four weeks hold above the breakout and the January low, we can look forward to sustained movement to the upside. 

Click Image for Larger Version


The monthly data has an RSI(14) of 67. This matches the highs dating back to 1981. In the declining interest rate environment of the last three decades rates have peaked seven times with an RSI between 60 and 67. Note that the first month with a lower low in the yield became the catalyst for the next sustained move down.

However, in the two decades leading up to 1981 the strong momentum consistently pushed the RSI above 67. It reached 90 in 1966, 81 in 1969, 71 in 1974 and 82 in 1980. Minor corrections were followed by higher yields. The four important highs in yields did not occur until a bearish divergence was formed.

We’ll monitor the current move with a close eye on progressively higher lows in the monthly chart.

Click Image for Larger Version 



Bonds & Interest Rates

No Bond Vigilantes: Just Record Short Futures Speculators

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Posted by Mike Shedlock

on Wednesday, 14 February 2018 07:37

A reader asked me about 'Bond Vigilantes' after reading this article: 'Bond Vigilantes' are Saddled Up and Ready to Push Rates Higher.

  • There's reason to be concerned about bond vigilantes, who are no longer under "lock and key" and are free to push yields higher, Ed Yardeni told CNBC.
  • Yardeni coined the term "bond vigilantes" in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline.
  • People are looking more at the domestic situation and saying, 'You know what, maybe we need a higher bond yield,'" Yardeni says.

This is complete silliness. There are no "Bond Vigilantes".

Fundamentally, there is no way to dump holdings to enforce "fiscal discipline" because someone has to hold every bond issued until it comes to term.

However, there is a record speculative building up against bonds in the futures market.

Hedge Funds Push Record Bets Shorting Treasuries

Hedge funds and other large speculators are more convinced than ever that the 2018 bond-market rout will resume in the days ahead.

The group, known for trading on momentum, boosted short bets in 10-year Treasury futures to a record 939,351 contracts, according to Commodity Futures Trading Commission data through Feb. 6. That means the violent market moves on Feb. 5, when the Dow Jones Industrial Average suffered an unprecedented drop and 10-year yields fell almost 14 basis points, weren’t enough to dissuade wagers that rates are headed higher. The next gut-check comes Wednesday, with the latest read on consumer prices.

Speculators’ positioning matters because it can push momentum to extremes, and can serve as a contrarian indicator since these traders are among the quickest to switch directions when prices turn against them. By contrast, longer-term holders like asset managers are seen as more likely to stay the course. Their net long in 10-year futures is the highest since October 2015.

30-Year Long Bond Positioning




Bonds & Interest Rates

The Fed’s Impossible Choice, In Three Charts

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Posted by John Rubino - Dollarcollapse.com

on Monday, 12 February 2018 06:02

Critics of “New Age” monetary policy have been predicting that central banks would eventually run out of ways to trick people into borrowing money. There are at least three reasons to wonder if that time has finally come: 

Wage inflation is accelerating
Normally, towards the end of a cycle companies have trouble finding enough workers to keep up with their rising sales. So they start paying new hires more generously. This ignites “wage inflation,” which is one of the signals central banks use to decide when to start raising interest rates. The following chart shows a big jump in wages in the second half of 2017. And that’s before all those $1,000 bonuses that companies have lately been handing out in response to lower corporate taxes. So it’s a safe bet that wage inflation will accelerate during the first half of 2018. 

The conclusion: It’s time for higher interest rates. 

The financial markets are flaking out



Bonds & Interest Rates

Get Out of These Investments Now

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Posted by Paul Mampilly - Banyan Hill

on Wednesday, 07 February 2018 06:33

“When is the cheapest time to buy a Christmas tree?” I asked my kids.

My kids guessed that the earlier you bought it, the better.

Trees should be cheaper if you bought them earlier because, well, they have little use until Christmas, according to them.

For them, a Christmas tree means Santa and presents.

So it’s of little value to them until Christmas Eve, when its value spikes up.


It took a bit of explaining to get them to see that trees crash in price as Christmas approaches.

If you’re in the business of selling Christmas trees, you know there is no market for trees after Christmas Eve.

Though my way of looking at it is less exciting than my kids’ way of seeing things, it’s the way things actually work for Christmas trees — and in financial markets.

In simple terms, it means looking at supply and demand.

Right now, demand for certain investments is set to plummet. When that happens, you’ll see the prices of all these things drop through the floor.

Here’s why this is going to happen starting now…

Supply and Demand and Corporate Bonds

You see, the Federal Reserve started raising interest rates regularly starting late in 2015.

Since then, the interest rate for one-month government bonds has rocketed up from essentially zero to a high of 1.33%. And these interest rates are continuing to go up.


It took a bit for these short-term rates to start affecting bonds that go out longer. However, by late 2016, interest rates on longer-term bonds like 10-year government bonds started to go up too.

The 10-year bond is used by professional investors to gauge the attractiveness of all investments and set the price of all assets.



Bonds & Interest Rates

Raising Rates Reflect Bigger Debt Not Faster Growth

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Posted by Peter Schiff - Euro Pacific Capital

on Tuesday, 06 February 2018 06:25

While investors are justifiably focused on what may be the opening crescendo of a long overdue sell-off in stocks, there is not, as of yet, as feverish a discussion of the parallel sell-offs in bonds and the U.S. dollar, which have been underway for at least a year and a half in bonds and 14 months for the dollar. I contend that this should be widely understood as the root causes of the jittery Dow, and are ultimately far more important. A continued decline in the dollar and bonds holds the potential to ignite inflation while increasing mortgage rates, borrowing costs, and federal deficits. These developments would strike at the very heart of the economic foundation that has supported the country since the Financial Crisis of 2008, and threaten to push the economy into a recession that the Fed may be powerless to confront.

Secretary of the Treasury, Steve Mnuchin, stunned markets late last month when he said that a cheaper dollar would be a welcome development for the U.S. economy. The dollar sold off sharply as Mnuchin's words appeared to be taken as proof that the Trump Administration overtly embraced a weaker dollar. To quell the uproar, President Trump himself, freshly arrived in Davos, Switzerland, had to "clarify" the Secretary's comments, explaining, as only 'the Donald' can, that by "weaker" Mnuchin really meant "stronger."

The exchange did provide a fresh twist on our decades-old "strong dollar policy," which traditionally works like this: The President and/or senior Fed officials refer all questions about the health and trajectory of the U.S. dollar to the Secretary of the Treasury, who proclaims loudly and clearly, with no trace of irony, that "a strong dollar is in the national interest." These comments reassure the markets, the dollar rises, and the operation is complete. Although this protocol is one of the simplest Washington has to offer, the Trump Administration managed to get it wrong on its first try.

Despite the fact that Trump's vocal support for a "strong dollar" was not accompanied by any indication that he would actually do anything to support it, his words temporarily reversed the dollar's 24-hour skid. But apart from reacquainting us to the absurdity of a "policy" that is simply based on mouthing a canned phrase, the episode raises a couple of key issues. Trump claimed that the economy is surging and, as a result, the dollar will keep getting stronger and stronger. The problem with these assertions is that neither is true.

Last week's newly released Q4 GDP report from the Bureau of Economic Analysis (BEA) shows that the economy grew at 2.6% in the Fourth Quarter, bringing the entire year's GDP growth rate to 2.4%, only .2% higher than the 2.2% GDP growth that we have averaged over the prior three years (2014-2016). And while 2.4% is marginally higher than the average growth we have had since the end of the 2008 financial crisis, it is still significantly below the average over the past century, and even weaker than two years of Obama's second term.

The news is also surprisingly weak on the trade and employment fronts, another two areas for which Trump has shown particular enthusiasm. Contrary to the supposed "record job creation," average monthly job gains in 2017 were 17% slower than the combined averages in 2015 and 2016, based on data from the Bureau of Labor Statistics. In fact, job growth in 2017 was its slowest pace since 2010. Similar disappointments can be found in America's trade balance, which, according to Trump, has improved dramatically due to his "tough" negotiations and our resurgent manufacturing sector. But according to the U.S. Census Bureau, average monthly 2017 trade deficits (through November) were 11% wider than 2016, and 14% wider than the average over the prior 4 years. What's worse is that these increases come at a time when a falling dollar, in theory, should have narrowed the gap!

Given all this, one would be hard-pressed to find the "boom" Trump describes, especially if one is also claiming that such windfalls were not occurring under Obama. But since when have facts ever mattered in Washington or on Wall Street?

So if Trump is wrong about the economy, jobs, and trade, what should we make of his view that "the dollar will get stronger and stronger?"

While the financial media has been focused on the stock market, most have dismissed the significance of the declining dollar. 2017 saw the first annual; decline in the dollar in five years and its largest decline in 14 years. 2018 is off to an even worse start, with the dollar registering its steepest January decline since 1987. In fact, against the Chinese yuan, January was the weakest month for the dollar since 1994. The current decline in the dollar index that began in December 2016 is now the longest continuous decline in the last 12 years. And while other recent declines have been steeper (see chart below), this one is distinct because it is occurring against a set of economic conditions that should be bullish for the dollar. Economic growth is assumed to be strong, consumer confidence is high, and the Fed is expected to keep raising interest rates and actually shrink its balance sheet (which would diminish the supply of dollars).




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