US Treasury Yields Gapped Up On Thursday

I wanted to send my sincere congrats to the bond market for sniffing out the danger, inherent in the actions taken by our Federal Reserve Bank and Treasury. There has been a huge expansion of debt, and it seems there’s no limit. Well over the last several days, the bond market has awakened. Yields are spiking. Rates are moving higher. This is not part of Ben’s grand plan. He wanted to keep rates low to “spark the economy”, to create refinancing, building, credit expansion etc. Guess that’ll have to wait a bit based on today’s action.

10 yr and 30 yr yields GAPPED up today:

The 10 year bond and the thirty year bond sold off Thursday . All the talk about the stress tests overshadowed the developments in the bond markets. I mentioned a few posts back that I firmly believe that the bonds markets will begin to dictate how we proceed further. Bernanke firmly understands the repercussions of rising yields. CNBC can talk about what a success the stress tests are, but the bond market will be the final arbiter of that decision.

The US Treasury has embarked on one of the largest borrowing campaigns in US history. It’s not likely that the bond markets are going to sit passively or quietly while helicopter Ben inflates the hell out of our currency. The bond yields moving higher Thursday are a clear signal that there are limits to how much borrowing can take place.

Sure we can change the rules to the game and pretend that the banks are really profitable (mark to market changes etc). But the 10yr and 30yr bonds are never outsmarted by slippery Federal Reserve or Treasury hacks.

If rates continue to rise, the Fed will be forced to continue to purchase bonds and drive down the rates…..er….try to drive down the rates. It is yet to be determined whether or not he will be successful in this endeavor.

Hats OFF to the Bond Market - A True Fed “Governor”

The US Dollar has also been showing weakness recently. You can see that the US Dollar Index is currently below all moving averages on the daily chart. It makes holding the bonds kind of risky. You may want to put money into bonds, but who knows how low the dollar will ultimately go.

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