10 Year Treasury Bond Yield

BEING STREET SMART

Sy Harding

A CASE of Treasuries U.S.! June 26, 2009.

There's an old saying which goes like this: "The market will do whatever it takes to fool the majority of investors." It is a way to describe the feeling of investors, which is known as a "contrary indicator "(because the majority of investors are extremely optimistic about the important market tops and most bearish at the bottom important).

With that in mind look to U.S. treasury bonds.

Could they be more undesirable, more encapsulated in the feeling bearish?

After all, who would buy U.S. treasury bonds? The U.S., already the nation of the world's largest debtor, commits several trillion dollars to rescue its financial system and re-stimulate its economy. To get to the cash he has to print more dollars and to sell more debt in the form of Treasury bills than ever in its history. As in any market has increased supply results in falling prices.

Then there is the fact that, thanks to years of record trade deficits with its trading partners, foreign countries have become major holders of U.S. bonds, the excess of dollars from their exports will be held in U.S. bonds and other assets denominated in dollars. (China alone holds $ 763 million of Treasury bonds U.S.).

Already, lower bond prices abroad, including China, Brazil and Russia is making noises about converting some of their dollar reserves to other currencies, calling for the IMF to issue bonds backed by a basket of world currencies, as a way to do it.

In addition, it is known in advance, at least in the current popular wisdom, soaring federal debt that results in a hyper-inflation down the road. And inflation mistake bonds, an increase inflationary interest rates cause bond prices to plunge.

Is a fascinating story.

However, last fall, when the risk of collapse of the global banking system created the fear that there was no refuge anywhere, neither in the stock market, not even in bank savings accounts, bonds United States regained its stature as a global safe haven. The frenzied panic to move money into the created what I described in December as a bull, with the iShares ETF, for example 20-year bond (TLT symbol) becomes extremely more above its range of 20 my week I issued a sell signal on January 5, recommending the purchase of the "inverse" ETF on the requirement of 20 years, warning that falling bubbles is almost always the mirror of the tip up at.

Indeed, the bonds have reached a peak in early January and has certainly plunge severe since the unloved and unwanted now.

However, I believe a positive case can now be made for U.S. Treasury bonds again.

On the technical side, in their fall after their bubble burst last January in bonds have become extremely oversold in their 20-week moving average.

Regarding the confidence of investors, the bonds may be about as unloved and unwanted comments about the positive obligations now rare.

On a fundamental level, for two fundamental reasons, the government will do whatever it takes to try to bring down interest rates, bond prices. First, mortgage rates are tied to Treasury bill yield to 10 years. Recently, rising bond yields, due to falling bond prices, mortgage rates have increased at a time when the government desperately needs to decline, if there is to be successful in obtaining over housing recovery . Second, a renewed rally in bond prices will ease concerns that global central banks could begin to withdraw dollars designated assets, just as their support is needed most.

The Fed realizes that, in March announced it would buy 300 billion dollars of Treasury bonds on the op.