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The Last Time Treasuries Were This Oversold...
Based on the most mainstream of mainstream overbought/oversold indicators (a 14-day RSI), the 30Y Treasury bond has not been this oversold since June 2007 - 9 years ago and a very memorable peak in yields.
As Kessler notes, in that period, the 30yr peaked on June 12th, 2007 at 5.36% (30yr yields have been lower every day since then). Over the next month, the yield had fallen 16 basis points. Over the next 3 months, the yield had fallen 61 basis points, 6 months, 74 basis points. Finally, this big movement culminated in about a year and a half, as the yield had fallen 280 basis points to the financial crisis low of 2.55% on 12/18/2008.
Now, from the time the RSI first showed an oversold reading as strong as today's (6/7/2007), rates rose over the ensuing 4 days another 16 basis points to the ultimate peak. With this in mind, we don't assert that today is the yield peak of the recent sell off (it could be), but rather that this selloff has moved so far so fast that its rarity ranks with periods that ended up being very profitable for owners of US Treasuries.
Charts: Bloomberg
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And we all know what happened next...........
Yeah well, It's different this time.
It always is and with all the CB's bending the system into a pretzel, it's shiny as far as the eye can see...if your legally blind.....
I've come to enjoy this sand in my eyes. Really, there's lots of free time when real valuation analysis no longer matters.
Not to worry, we have all that military exercizin' at the moment in the states...
(For foreign training, doncha know..)
If we have to wait a year and a half for the next pop, I might go into a coma from boredom.
Seems the Central Gangsters can just step in and 'rescue' anything they feel like at any time.
Yep, my thoughts exactly. Sometimes they allow the market to panic for a couple days just to give the illusion its not being completely controlled before riding to the rescue. Heck, last year they let it sink for almost 2 full weeks, now that was drama! Almost like watching a re-run of an ole' Clint Eastwood Movie. You already know what's going to happen but its fun to watch the script play out.
The yield on the 10 Year UST is about to make break to the upside... big time. The 2013 3.036% high mark is just a little ways from being taken out. By 4%, there will a lot hurting puppies...
http://www.globaldeflationnews.com/10-year-u-s-treasury-index-yieldellio...
What are you talking about? The 10 yr is at 2 and a quarter and is eons away from ever reaching 3% let alone 4!!!!!!!!!! Are you on crack or something?
Contrarian opinions are the most valuable around these parts. Thanks. All else around these parts is tired ZH group think. Which one of these blithering regulars predicted the down fall of gold?
Whether on a longer-term basis (as this piece points out) or on a shorter-term basis, Treasuries are WAY oversold, and are relatively attractive at these prices.
Agreed.
London took the 10yr to 228 at 5 am the Chicago has brought it back down to 220 as of now.
There are some many tail risks out there - emerging markets & the EM currencies at risk of dollar strength, ME, religiouos wars, Russia, Greece, and the US economy which is schizho - "favorable" employement stats compared to a horrible real economy.
IMHO - 10yr will close at 225/228 then rally back down to 186. A close below 186 means 165 is next resistance. Below 165 is 135 in yield. I don't have timing as the trend is data dependent.
NoVa
As far as risks concerned also potential for QE4,5 etc...Fed buying Corporate ETFs why not?
Fed can buy all the stocks all the time. It will do little for the economy in terms of growth but at least rescue the fantasy of a 401k powered retirement plan. The Dollar gets diluted more and more of course and the Fed balance sheet would double or triple over the next 10 years.
They could technically announce stock purchasing QE and raise interest rates at the same time. It would work until something breaks.
Yep, just all about keeping the befuddled masses loyally contributing to their 401k monthly for the Central Gangsters to gamble with.
Don't worry. The Soviets tried "setting" the prices for all goods and services by controlling the economy and markets and people eventually woke up and started the underground economy. This is how it will play out on a global scale. So what if someone has electronic billions of fiat sitting in accounts somewhere when nobody is giving him the time of day?
QE4 will actually be the signal to sell the long bond. Look at a chart - during every iteration of QE to date, rates actually increased. And when the QE ended (or began "tapering"), rates fell.
Cleanest dirty shirt argument.
Even if it is the cleanest, people don't prefer to buy it while the Fed is in the process of using it as a towel. Once the dirty hands leave it, people can focus on its relatively clean condition rather than its recent use as a coal-miner's bath towel.
With that said, the last few go arounds, the EU wasn't doing QE. Now they are. That might change the paradigm.
Sesquestration is also looming as well as another debt ceiling / extension debate.
Remmeber it is poltical posturing time of year -
This analysis uses a short term indicator and then applies it to long term trend. It also does not take into consideration the current absolute levels of yield, which are exceptionally low.
Not to nit pick....
But wasn't June 2007 8 years ago????
Did I fall into a time warp??
Is it 2015 or 2016?
Here are some more signs of a coming recession.
http://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is how to prepare yourself.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Good luck!