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Is the Low in for Treasury Yields?


Buyers of long bonds beware.


In the chart below, please note the very simple channel in long bond futures going back to the beginning of the bull market. Prices seem to top every 5 years. And they topped again - right on schedule.

Click to enlarge

The "usual" correction is in the 18-25% range if it revisits the lower end of the channel. From the top, at roughly 142, a 25% move would be to 106 or so, which is still a whopping 4.4%. I think that's far too low considering a) what actually now sits in the Treasury and b) the sheer amount of global supply that's forthcoming.

Even in a slow economy, I think foreigners will need to be sellers, and I am finishing up my mortgage-backed securities program today and heading to more cash.

One more thing. The secular bull market in stocks, in my opinion, ran from 1974 to 2000, or 26 years. The bull market in bonds looks like it ran from 1982-2008, or 26 years and exactly how long I have been at this. And with the "blow-off" move we just had, my guess is that the top is in, perhaps for a very long time. Like a decade.

Using a Fibonacci analysis leads us to targets that are, well, nauseating - and could be a 50% retracement of the whole move. So buyers of long bonds beware. And if you want to refinance and actually can find a good program, I wouldn't hesitate. That goes for individuals and corporations alike. And why the Treasury is buying bonds at these levels -- instead of selling long Treasuries -- is beyond me.

Click to enlarge

Click Here to Purchase "Bond Basics: A Q&A with Bennet Sedacca"

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