Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

U.S. Treasury Bond Debt Bubble Bursting!

Interest-Rates / US Bonds May 01, 2009 - 07:07 AM GMT

By: Money_and_Markets

Interest-Rates

Best Financial Markets Analysis ArticleMike Larson writes: You’d think that after the dot-com bubble … the housing bubble … and the bubbles in commercial real estate and private equity, investors would have learned their lesson.

Nope! They did the same stupid things this fall …


• They chased long-term Treasury prices higher and higher (just like they chased Miami condos and Pets.com),

• They drove prices to loftier and loftier levels,

• And they relied on the Fed to save their bacon.

Investors who bet that long-term bonds would surge, are getting their heads handed to them.
Investors who bet that long-term bonds would surge, are getting their heads handed to them.

And now, they’re getting their heads handed to them! Long bond futures have plunged a whopping 20 points — from 143 in mid-December to less than 123 yesterday. The yield on the benchmark 10-year Treasury Note has exploded from a fall low of 2.06 percent to 3.11 percent this week — a gain of 51 percent. Key technical levels are giving way all over the place.

Fortunately, you had the market’s playbook. You were told in no uncertain terms — right here in Money and Markets — that the Treasury market was caught up in a huge bubble, one that was destined to pop.

As I said in early December:

“The truth is the U.S. government is going to have to flood the market with a wave of Treasuries the likes of which the world has never seen. And just like any other market, the bond market reacts to supply and demand.

“Too much supply and not enough demand should drive prices lower.

“Bottom line: There are lots of reasons to believe this Treasury rally is unsustainable, and that a day of reckoning is fast approaching.”

Now, let’s talk about why this is happening … where we’re headed next … and what the implications are for you and your investments.

The Biggest Debt Binge In World History

The immediate catalyst for this week’s bond market break? The Fed’s refusal to increase the amount of Treasuries it has committed to buy. The Fed said at a policy meeting several weeks ago that it would purchase up to $300 billion in Treasuries, and it didn’t alter that target at this Wednesday’s gathering.

But I believe the problem is MUCH bigger. For starters, as I mentioned in my Money and Markets column last week, the Federal Reserve has been backing up the truck and buying every crappy piece of paper it can get its hands on. Lousy residential mortgages. Crummy commercial real estate loans. Toxic CDOs, credit card bonds, student loans — the Fed is buying or loaning money against anything and everything!

I warned that at some point, this would be viewed as bearish for the dollar. I also said it would only add to worries about the perceived credit quality of the U.S. itself. We’re starting to see the dollar get clubbed now and clearly, U.S. debt is getting trashed.

With the Fed and Treasury borrowing and spending like crazy, we’re starting to see the dollar fall.
With the Fed and Treasury borrowing and spending like crazy, we’re starting to see the dollar fall.

It’s not just the Fed, either. The U.S. Treasury is doing its part, too. Indeed, we’re borrowing and spending the country into oblivion!

This week alone, Treasury sold a record $26 billion in seven-year notes, a record $35 billion in five-year notes, and $40 billion of two-year notes. Next week, we’ll get a record $71 billion in longer-term debt issuance.

Total net borrowing needs for the second quarter are now up to $361 billion. That’s up 27-fold from $13 billion a year earlier and more than double the previous estimate of $165 billion.

We just learned the Treasury will start selling 30-year bonds every month, as opposed to eight times a year. And speculation is running rampant that the U.S. will soon start auctioning off 50-year bonds! All this issuance is needed to fund a federal budget deficit that’s projected to hit at least $1.75 trillion this year and $1.2 trillion in fiscal 2010.

The Implications For You …

First, I’ve implored you to dump long-term bonds for several months now. If you followed that advice, you saved yourself a world of hurt. The average long-term government bond fund has already lost 11.2 percent in value this year, according to Morningstar, and we still have eight months to go!

Credit spread tightening has helped diversified, long-term bond funds perform better. But even they’re showing year-to-date losses, on average.

My advice remains the same: Get the heck out of the LONG-TERM part of the bond market while you can. Stick with SHORT-TERM Treasury bills. They are not subject to the same price risk and credit concerns as longer-term notes and bonds.

Second, if you’re a subscriber to Safe Money, you’ve already received specific instructions on how to PROFIT from declining bond prices. Good for you! We’ll keep you updated in our letter on what to do going forward. [Editor's Note: Want to get Safe Money's "buy" and "sell" recommendations for just 26 cents a day? Then click here.]

Meanwhile, if you’ve been waiting to refinance your mortgage, I wouldn’t hold off any longer. The Fed has been trying to manipulate the bond market in order to hold rates down. But the cumulative “sell” decisions of investors around the world are starting to overwhelm Bernanke & Co.

Thirty-year mortgage rates are still hovering in the high 4 percent area. But they’ll climb if bond prices continue to tank.

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules