Thursday, July 16, 2009

Treasury Bull Market Continues

Volatile? Yes. Upward pressure? Sure. But, David Rosenberg states why we are still well within the secular bull market for ten year treasuries:

To be sure, this has been a brutal year for U.S. Treasuries, with the yield on the 10-year note nearly doubling this year at the June 10th peak of 3.98% (though the Treasury market has generated a +2% return so far in July — the first positive showing since March). From our lens, it cannot be said that the secular bull market in bonds is over until the 10-year breaks above 5.26% because then and only then will we be able to say that for the first time in this 28-year secular bull phase, the prior interim high was “taken out”. Look at the time series below and you will see that ever since bond yields peaked during the inflation bubble of 1981 they kept on hitting lower and lower “highs” during the eight cyclical selloffs, and they continuously made lower “lows” during the intermittent eight cyclical rallies.
Table in chart form below...


Source: Gluskin Sheff


  1. Jake,

    You know where I stand. And I think the major trend of lower rates is still in place too.

    FYI, the 10yr yield in 1929 peaked at ~ 3.60%. Then it trended lower for 12 years when it bottomed just under 2% in 1941. The 10 yr yield did not hit 4% until 1959 - thirty years after the start of the Depression. Japan's experience looks simmilar after 20 years.

    To me, it's amazing how ineffective monetary policy is at preventing major trends be they falling rates in the 1930s, rising rates in the 1970s or falling rates in Japan in the 1990s and 2000s.

    I don't see inflation and I don't think Bernanke's theories or his monetary policies will change people's desire to "get out of debt". No way can you micro manage the economic decisions of billions of people at economic extremes. Bernanke and Greenspan should have stemmed the credit bubble many years ago. The die is cast. We have crossed the RubiCON.

    Just thoughts.

  2. Mab I agree with you about interest rates.
    The problem we might have is inflation with low interest rates.
    Marc Faber mentioned the reserve bank will be reluctant to raise rates because of the governments interest bill. This is a recipe for hyperinflation.
    In the great depression they did not print money like today. They can print money endlessly and drop it from helicopters - so to say they cant stop deflation I would argue is not correct.
    Remember things repeat themselves but not usually in the same sequence and with unique differences.
    I very much prefer deflation because asset prices need to come down. It seems like theres arguments for both sides - in the end there might a combination of both?

  3. I forgot to also mention the great depression had abundant oil supplies. Oil supply will obviously drop below what the economy requires overtime - even if growth is below trend. This in itself will create hyperinflation, exacerbated by the reluctance of the fed to increase interest rates.