Long-term yields could be bottoming here if a T-Bond futures target that we’d flagged the other day holds up. The target, a Hidden Pivot resistance at exactly 134^09 (basis the September contract), lies just two ticks above yesterday’s high, 134^07, and corresponds to a yield of about 3.64% on the 30-Year Bond. However, since we cannot rule out the possibility that bond prices will continue to rise, driving yields even lower, we will continue to monitor the target closely. There are several possibilities going forward. One is that the target gets decisively penetrated within the next few days. If that were to occur we would regard it as a clear sign that the extremely powerful rally begun in April is likely to continue at its recent pace. T-Bond quotes have been rising steeply since spring as yields have fallen from around 4.86%, but it’s conceivable that yields could drop to as low as 3% if the rally continues until November. Another possibility is that the 134^09 Hidden Pivot contains the rally for the time being. That would suggest that yields will either remain steady or move higher.
Usually we can discern a reason for trend changes in the trading vehicles we track and forecast. But in the case of the long bond, the logic of a downturn in prices can be very elusive, if not to say arcane. Explaining why bond prices have risen in recent months, on the other hand, is not rocket science. The conventional explanation is that investors around the world have bought U.S bonds because they are still the safest investment around. If there is any borrower that can still be reckoned as too big to fail, the U.S. Government is it. (For the record, we see the U.S. as a bankruptcy-in-progress and cannot conceive of any other outcome.)
A Lush Mirage
Additional “support” for Treasurys is coming from the government itself, since the U.S. is now parking the proceeds from maturing mortgage paper in longer-dated T-Bonds. We put quotes around the word “support” because it is beyond stupid to think that a bankrupt government’s purchases of its own debt supports much of anything except a mirage. Even so, we accept that the institutional lemmings will continue for yet a while longer to gorge themselves on the coconuts, cool water, dates, figs and olives produced by their lush mirage. As to why bond yields would be headed higher, we can only speculate that perhaps the debt paper issued by newly-austere Europe will gain favor for a while.
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Other Paul:
“6. Potential Black Swans (such as attacks on Iranian nuclear facilities)”
You can not really call that a black swan, as such an attack is hardly SO outside of the sphere of imaginables, as to fit that definition–
looked at from the point of us at large.
More important, from the point of view of this happening, it is entirely predictable for a subset of people, as they will be the ones controlling the actual when, where, and how of any such attack.
Knowing how our corrupt system works, these people will of course also keep the DC-NY axis fully informed in order to be positioned appropriately.
Us peons of course not, but generally, the black swan monicker should not be applied to that event.