"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, September 14, 2012

Bonds Might Have Topped Out, for Good

Today's price action in the long bond is highly suggesting that the multi-decade bull market in US bonds is over. The inflationary impact off three successive experiments in Quantitative Easing has seemed to have finally gotten the attention of that endangered species once known as the bond vigilante. Remember, this latest round of QE is not targetting US Treasuries but rather agency debt. That removes a major source of demand.

With the US Dollar falling apart thanks to a deliberate attempt by the Fed to debauch it, buyers, particularly foreign buyers, are going to demand higher rates to compensate them for the currency risk.

either way, today is shaping up to be a big day for the future of long term interest rates.


  1. With bonds falling and interest rates rising, I wonder how real interest rates (when rising) will affect the price of gold in a QE3 environment? It was shown in the link below that when real interest rates were less than 2%, gold price rises. If we see bonds falling and $gold price rising, then we'll get a sense of the inflation rate brought on by QE3. Gold...get you some!


  2. Maybe time for them to manufacture a reason to rush to safety. Won't a Rising rate on the long bond crush the budget????

  3. Dan please,
    what do you make of Harvey Organ's analysis of the COT report?
    "Conclusion: Terribly bearish as the bankers went net short by another 17,705 contracts. I believe this is the 4 or 5th straight COT report that the bankers have continually gone additionally net short."
    He seems to watch only the additional short position of the commercial. Do you agree with this reading?

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  5. I give the Fed another 6 months before they start buying bonds again... First they need the politics to resolve the Fiscal Cliff before the Fed intervenes again in the bond market. It makes no sense for the Fed to do anything until there is a clearer vision on that issue. Second, the Fed will run out of short term treasuries by the end of this year, which will effectively put an end to its Operation Twist. In 6 months from now I predict that the Fed will buy 40 billion/months of MBS + another 40 billion/month of bonds. At this stage of the monetary system crisis, 40 billion per month is not be enough. This is a half measure meant to buy time again until the politics get their house in order in relation to the elections and the fiscal cliff.


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