via SafeHaven.com - Signs Of The Times

"Credit Markets

Since the high on July 26 the long bond has set a downtrend to 147.5. While declining with the joy of risk elsewhere, the key thing is that the top has been made.

Since the first of the month, investment grade corps (LQD) have rolled over, and the emerging market bonds (EMB) have declined a little.

The point is that long treasuries have been leading the action as lower-grade issues continued to party. Over the past week, the yield for Baa has increased from 3.54% to 3.63% as junk declined from 11.46% to 11.23%. Such divergences are typically found at important tops for the whole bond market.

And really in the party mode, sub-prime mortgage bonds have soared to new highs for the move. The one we monitor set a low of 38 in October and rallied to 52.6 in February. After slumping to 48 in early June, it rallied to 54 three weeks ago. The set back was to 52.5 and now it is at 56. The latest surge is getting compulsive.

This celebration of risk could expire within a few weeks.

The reversal could lead to serious dislocations in bond sectors that have yet to be hammered by the great global contraction."

When Bob Hoye says a top is in, its pretty certain that we're at a top or very near it. Mostly commercial traders drubbing GBN.V shares at this point are acting contrary to the market, and even their own trade, in the hopes that bonds prices will keep going higher. Buyers of GBN.V stock at these prices, which will not last, are relatively few.

If I am correct that the trade is to sell the miner and buy the long bond, and that GBN.V stock is strongly inversely correlated with 30-year U.S. treasury bond prices as part of a derivatives transaction, then July 31 would likely have been the low in GBN.V stock, right after the bond market high. The high in LQD came just the day before.

It should not escape GBN.V management that if bond markets are selling off, which may also result in a knock-on effect on equity markets, then anyone wanting to invest in equities will be looking for a yield.

http://www.safehaven.com/article/26536/good-vibes-have-appeared-again

-F6