This is the first time I've ever agreed with one of your posts. The Fed hates that the 30Y yield is so low because it means inflation expectations are low, and that's all the Fed really cares about. But they won't be able to do anything about it until next year when they announce QE4. And when that happens, it will finally be time to sell the long bond.
Bears have been making this argument all year long, yet 30Y treasuries are up almost 30% year to date. In the next couple of years, interest rates will fall lower than most investors believe possible. And by the way, nobody here gives a #$%$ what those CNBC morons think.
Foreign ownership of long-term US treasuries is tiny - only about 8% of the total. You have no idea what you are talking about.
And Guy Adami said TLT was going to $131. You guys are trying to short the wrong market - you should go over to the HYG site where the real carnage is happening. The money is pouring out of risk assets and rotating into Treasuries.
And Guy Adami predicted TLT was going to $131. What makes you think any of those "traders" are worth listening to?
If you had bought 30Y Treasuries last December, when all of the "experts" in the media were telling you that rates were going to rise in 2014, you'd be up about 30% year-to-date.
Foreign ownership of Treasuries with maturities exceeding 10 years equates to only about 8%. The long-term bond market in the US is principally a domestic market.
The Fed can control short-term rates, but it's much harder for them to control long-term rates. Long-term rates are nothing more than a barometer of economic activity and inflation expectations, and both happen to be falling at the moment. If the Fed tried to raise short-term rates now, during this feeble "recovery", it would perversely cause long-term rates to fall even further (as the bond market would anticipate the slowdown that the increase in short-term rates would cause). Study the experience of Japan and trade accordingly.
We've been hearing things like this from the bond bears all year long, and they've been nothing but wrong. Look at interest rates in Europe - we still have further to go...
If they did that, the bond market, anticipating the resulting slowdown caused by the higher rates, would bid up the long end of the curve, resulting in even lower long-term rates (thus pushing up TLT). Hard to imagine they would announce such a thing, though, with all the turmoil coursing through global markets. The bigger news tomorrow will be the CPI release.
That's generally true, although even ED was down around 30% during the financial crisis a few years ago, which seems strange to me. At the end of the day, nothing is invulnerable to a market panic.
If you hung out here more often, you would have learned that rates will spike when (take your pick):
1. the Fed ends QE3;
2. the Republicans take control of the Senate;
3. Ukraine settles down;
4. the Mideast settles down;
5. the Ebola scare blows over;
6. the hyper-inflation hits;
7. the Russians and Chinese start dumping Treasurys;
8. hedge funds quit manipulating interest rates;
9. investors realize the US is insolvent;
10. at noon tomorrow
Did I miss any? LOL
Napier nailed it. The yield on the 30Y has now dipped below the flash crash levels of October 15th, just as he predicted. On a related note, the five-year TIPS implied inflation rate is currently at 1.26%, well below the danger level of 1.5% he warned about a month ago...
If you want to really figure out what is going on with interest rates and the global economy, look no further than the US in the 1930's, or Japan for the last 25 years. Rates are going to fall further than most investors believe possible, and there's nothing the Fed can do about it. If they raised rates anytime soon, it would throw our economy into a recession or worse...
It works precisely the opposite of the way you think it does. Long term rates actually rose during QE1, QE2 and QE3 (because QE raises inflation expectations). Rates fell over 100 basis points at the conclusion of both QE1 and QE2 (in just a matter of months for each). Long term rates have now fallen 120 basis points since the "taper" of QE3 began. Look at a chart! Long term rates are nothing more than a barometer of economic activity and inflation expectations (both are falling at the moment). Next year the Fed will likely announce QE4 to combat the coming deflation. That will be the time to sell long term bonds, as QE4 will once again create inflation fears (and rates will rise).
With the US 30Y closing at a yield of 2.83% yesterday, it still offered a higher return than the following 30-year sovereigns:
Swiss 30Y = 0.85%
Japan 30Y= 1.38%
Germany 30Y = 1.48%
Austria 30Y = 1.48%
Netherlands 30Y = 1.57%
Sweden 30Y = 1.68%
France 30Y = 1.97%
Canada 30Y = 2.37%
UK 30Y = 2.64%
With a strengthening dollar and a wave of deflation headed our direction, US rates are likely to trend even lower.
Remember all those articles in November and December of 2013 preparing investors for “the rising interest rate environment” expected in 2014? Remember the 67 out of 67 economists in the April Bloomberg survey who predicted higher interest rates by the end of this year?
Well here’s a tip of the hat to the handful of bond analysts and economists who actually got it right, whose predictions were precisely the opposite of the conventional wisdom, and who have been absolutely correct this year in their calls for much lower interest rates:
Lacy Hunt (Hoisington Asset Management)
Jeff Gundlach (DoubleLine)
Guy Haselmann (Scotiabank)
Bob Janjuah (Nomura)
Russell Napier (CLSA)
Rick Santelli (CNBC)
Gary Shilling (A. Gary Shilling & Co.)
They were either ridiculed or ignored by the mainstream media (Santelli being the lone exception), but these courageous few are the ones I’ll be listening to in the future…