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Message: OT: The US 10 yr note & QE
It's a matter of time before short term bond yields creep even higher. More QE is a forgone conclusion. Silver & gold will likely spike up. Here's a good read from Turd Ferguson. SMF069
Murmurs From the 10-Year Note
Saturday, August 18, 2012 at 12:43 pm
What happened? Just a few weeks ago, we were worried that the treasury market was becoming a "black hole" that would soon suck in all financial assets. Instead, rates have reversed significantly. What does this mean and what does it portend?
First of all, here's where we were back in late July. The 10-year note had just fallen through 1.40% and it had everyone's attention:http://www.tfmetalsreport.com/blog/4046/two-things-my-mind. Here we are, 3-4 weeks later, and were at 1.82%. That is a HUGE move! What the heck happened? I think I have an answer but, first, some background.
Take a look at these two charts. One a is daily 10-year and one is a weekly. Note that the current price of the 10-year is 132.50. This is important because the area around 132 appears to be very important support. You can plainly see horizontal support on the daily chart but, looking at the weekly chart, 132 is also near the trendline from the lows of late spring 2011. Breaking that support and that trend would set a top and would foreshadow a move to 127-128. Now, look at the weekly chart. Notice that 10-year prices have been in a very long term up channel. Then notice that the past three Fed "programs" have been initiated when prices were near the top of the channel.
So, what is going on? Why the sudden dropoff in price? I think I have the answer. I posted this presentation yesterday. You may have already watched it. Watch it again and stop it right at the end, near the 57 second mark.
Watch the 10-year note. It will tell you.
One more thing for which we must be on guard. Look again at the 10-year daily chart. Do you see the sharp drop in price back in early March. If memory serves me right, wasn't that drop blamed for the demise of the JPM "London Whale"? Didn't everyone conclude that that particular, 4-point move in the note caused a derivative loss for JPM to be somewhere between eight and ten billion dollars? Well, since late July, the 10-year has dropped 3 points. I wonder if any of The Fed's primary dealers are feeling a bit of a pinch right now? Something to think about, that's for sure.
Now, before we get ahead of ourselves, we need to examine the Long Bond and The Pig for confirmation. Their charts are clearly rolling over but, unlike the 10-year, they are not in imminent danger of breaking trend. They must be watched closely, though, as a further break down in each will only serve to apply even more pressure to the 10-year note.
OK, just a couple more things and then I'm taking the rest of the weekend off. First, yesterday's CoT was very interesting, particularly in silver. Before jumping to conclusions, I'm going to wait to see what Uncle Ted thinks of the disaggregated report.
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