Treasury Market – The Alarm Bells Are Ringing

Treasurys have been sending strong signals these days. Today 10 yr Treasury yields dropped to 3.19%, a drop of 11 points on one single day:

treasury-yields-10-01-2009

Note the huge gap on opening today. On September 2nd I noted:

Today’s action in gold was beautifully complemented by corresponding action in Treasury yields which dropped by 8 basis points to close at 3.29%, a recent July low. If it breaks, the way down is more or less open:

10-year-treasury-2009-september-02
Click on image to enlarge.

Now take a look back at the first chart I posted. Notice how that support mark of 3.29% wasn’t even touched for a second today! Buyers leaped past that level and bid up prices so at opening yields were already at around 3.25%.

I am not saying that this necessarily has to mean something, but the likelihood that it expresses a huge demand for safety on any piece of bad news at this point, should not be discarded.

What else was noteworthy on this one day today? Look at the development in the gap between 10yr Treasury (IEF), 20+yr Treasury (TLT) vs. corporate (HYG) bond yields:

treasury-vs-corporate-yields-10-01-2009

See “Corporate Bond Yields – Where to From Here?” for the significance of the above data.

This may all be just a small twitch. But it may also be the mother of all warning signs. Mind the Treasury market in all your investment decisions.

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