Keep Watching The Bond Market

218
Tue, Mar 20, 2012 - 11:21am

The past week has seen some rather sharp selloffs in the U.S. treasury market. Is "Operation Twist" failing? Will we soon see a resumption of overt quantitative easing?

Diligent Turdites will recall that we've been discussing this possibility for months. For me, the key to correctly anticipating the resumption of overt QE is found in watching movements of long-term interest rates. As often stated here, The Federal Reserve cannot allow interest rates to rise. Keeping rates low and funding the federal budget deficit are the two, primary goals of quantitative easing. Therefore, dropping bond prices (higher interest rates) signal that more QE (Fed buying on bonds) is necessary.

Well, what to make of these charts? We know from reviewing the long-term charts of the 10-year and the Long Bond that previous drops in price preceded the announcement of QE1 and QE2. We're almost there again. The 10-year is now perched precariously above the all-important 127.50 level and the Long Bond just had it's initial test-and-hold of support at 135. Note that, prior to these latest drops, the bond and the note had been in rather tight ranges since the Fed began "Operation Twist" in September of last year.

With bond prices being near these critical levels and having gotten there so quickly, we almost have to expect a rally here. The question then becomes: What happens next? I'd expect 127.50 and 135 to hold for a while longer but, if those levels fail, QE3 should be right around the corner. Already, there are some folks out there who think that The Fed will announce QE3 in April or June. https://www.zerohedge.com/contributed/2012-10-05/probability-map-morgan-stanleys-vincent-reinhart-still-says-75-chance-fed-qe3 If rates keep rising, those pundits will be proven correct.

The current beatdown in the metals began inexplicably last evening. Whenever you see gold drop seven or eight bucks, out of the blue, on no news, at 9:00 pm EST, you know that a raid is coming. Lo and behold...we got one. Gold reached all the way down to $1640 overnight and silver touched $32. That the selloffs ended there should be no surprise to anyone as those are currently our two main, short-term support levels. For now, the pressure is off but there's really no reason to get excited just yet. The metals remain in their recent ranges. Gold between $1640 and $1670, silver between $32 and $33. Once the metals pop UP and out of those ranges, the bottoms will be set and we can begin to get excited again. Until then, I'm waiting patiently just in case one more leg down toward $1625 and $31 develops.

I hope you have a fun and stress-free Tuesday. TF

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  218 Comments

wonderer
Mar 20, 2012 - 11:26am

First?

Could it be?

It is! Amazing. I am always late to the party here, but today I am on time.

Dr G
Mar 20, 2012 - 11:26am

It is!

Things are aligning for QE3 announcement at Fed meeting near the end of April perhaps.

boatman
Mar 20, 2012 - 11:38am

MBS's

i hear the fed's target......and anthing house related.

after all, there's an election coming.

murphy
Mar 20, 2012 - 11:41am

Cinco de Mayo.... not quite

Cinco de Mayo.... not quite

squib
Mar 20, 2012 - 11:41am

Turd keep up the great

Turd keep up the great work!

Came across this:

https://finance.yahoo.com/blogs/breakout/wait-gold-bottom-1525-ilczyszyn...

I'm in agreement with so many on ZH...hoping for some kind of crash in all markets/economy so we can start over again.

It is quite frustrating seeing the manipulation and control week by week. Been trying to point out these things to as many folks as possible...failing miserably as they point to the stock market, the administration pounding in everyone's ears that the recovery is here and ongoing, lower and lower unemployment numbers. So...I just keep buying new guns and making more ammo while polishing shooting skills twice a week. What a great hobby, shooting and re-loading. I just picked up a Kimber CDPII with crimson trace laser, wow, what fun! Another M1A is next.

After being awake for a few years and no TV for 10 years...the fraud, lies and manipulation seems so obvious to me at times that I have trouble being contained when pointing out propaganda to folks...

Loud Noises
Mar 20, 2012 - 11:44am

@Apples, thanks

Apples gave a heads up in the last thread to the one day sale over at Silvertowne with the "spring" coupon code to save $20 off $200 or more. That let me get a nice 10 oz Silvertowne bar for $329, free shipping. Woohoo! I was going to head to the LCS for some halves but that can wait.

Thanks for the heads up and I recommend the deal to others who want to add to the stack today.

Mar 20, 2012 - 11:47am

And anorther thing...

I remember way back when rising rates were bad for stocks. The idea being that rising rates made bonds a more attractive investment alternative. Well, apparently not anymore...at least not while The Fed controls each and every "market".

¤
Mar 20, 2012 - 11:52am

Petro-dollars and the 10 yr UST

Thanks for the update. The 10 yr has a tug of war going on somewhere.

U.S. tolerance of $100+ oil in an election year tells me they have an arrangement of sorts with the Saudi's to purchase US debt with some of that extra oil revenue because the US is somewhat desperate for revenue's other then their own (Treasury/Fed) buying of our own debt. JMHO

Does anyone really hear any US politician strongly vilifying the price of oil right now? (crickets)

My guess would be that most of them understand the recycled petro-dollar into UST's that's been going on since the 1970's and how critical it's been and is now. They had to let the rates raise over %2.0 to get the Saudis to recycle even more petro-dollars into UST's imo. Whatever might be going on in the UST's lately the one thing I know for sure is that indeed something is going on.

My guess is that a large part of it is from these recycled petro-dollars and the resumption of 3rd party UST buying by China via the UK. I also believe that very recently that Israel mad e a decision to invest heavier into UST's if I'm not mistaken.

Add them all up (plus the buyers of UST's we don't know of and the one's we do ~Treasury/Fed) and you have a frothier UST market then just a couple months ago.

OPEC Recycles Dollars Into Debt 50% Faster Than Foreigner

By Cordell Eddings and Austen Sherman - Mar 19, 2012 3:00 PM ET

OPEC nations are plowing cash into U.S. Treasuries at a more than 50 percent faster rate than all other foreign investors, an unintended benefit of oil prices above $100 a barrel.

Organization of Petroleum Exporting Country members boosted their net purchases of government debt by $43.3 billion, or 20 percent, in the 12 months ended Jan. 31, compared with a 13 percent increase for non-OPEC foreign holdings...

https://www.tfmetalsreport.com/comment/552910#comment-552910

Mar 20, 2012 - 12:05pm
101

Just saw this ad

on my site (placed there by Google).

So, this guy is an "overachiever" because he has purchased a fucking CD at 1 fucking percent? Give me a break! This is the world we live in now?

And I love how it's from "CIT Bank". Just another piece-of-shit, government-owned bank (like Ally) that has risen from the ashes of a bankrupt entity, in this case CIT.

apex101
Mar 20, 2012 - 12:10pm

KWN

Turd should do a KWN interview. That be classic. They just show the hat as the main pic on his interview section.

Key Economic Events Week of 1/13

1/14 8:30 ET CPI
1/14 9:00 ET Goon Williams
1/15 8:30 ET PPI and Empire Fed
1/16 8:30 ET Retail Sales and Philly Fed
1/17 8:30 ET Housing Starts
1/17 9:15 Et Cap Ute and Ind Prod

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Key Economic Events Week of 1/13

1/14 8:30 ET CPI
1/14 9:00 ET Goon Williams
1/15 8:30 ET PPI and Empire Fed
1/16 8:30 ET Retail Sales and Philly Fed
1/17 8:30 ET Housing Starts
1/17 9:15 Et Cap Ute and Ind Prod

Key Economic Events Week of 1/6

1/7 8:30 ET US trade deficit
1/7 10:00 ET ISM Services PMI
1/7 10:00 ET Factory Orders
1/8 8:15 ET ADP employment
1/9 8:00 ET Goon Chlamydia speech
1/9 1:20 ET Goon Evans 2:00 ET Goon Bullard
1/10 8:30 ET BLSBS
1/10 10:00 ET Wholesale Inventories

Key Economic Events Week of 12/16

12/16 8:30 ET Empire State Manu Idx
12/16 9:45 ET Markit flash PMIs Dec
12/17 8:30 ET Housing Starts and Bldg Perms
12/17 9:15 ET Cap Ute and Ind Prod
12/19 8:30 ET Philly Fed
12/20 8:30 ET Final guess Q3 GDP
12/20 10:00 ET Pers Inc and Spending
12/20 10:00 ET Core Inflation

Key Economic Events Week of 12/9

12/10 8:30 ET Productivity and Unit Labor Costs
12/11 8:30 ET CPI
12/11 2:00 pm ET FOMC fedlines
12/11 2:30 pm ET CGP presser
12/12 8:30 ET PPI
12/13 8:30 ET Retail Sales
12/13 10:00 ET Business Inventories
12/13 11:00 ET Goon Williams speech

Key Economic Events Week of 12/2

12/2 9:45 ET Markit Manu PMI
12/2 10:00 ET ISM Manu PMI
12/2 10:00 ET Construction Spending
12/4 9:45 ET Markit Services PMI
12/4 10:00 ET ISM Services PMI
12/5 8:30 ET Trade Deficit
12/5 10:00 ET Factory Orders
12/6 8:30 ET BLSBS
12/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 11/25

11/25 8:30 ET Chicago Fed Nat'l Idx
11/25 7:00 pm ET CGP speech
11/26 8:30 ET Advance Trade
11/26 9:00 ET Case-Shiller home prices
11/26 10:00 ET New home sales
11/26 10:00 ET Consumer Confidence
11/27 8:30 ET Q3 GDP 2nd guess
11/27 8:30 ET Durable Goods
11/27 9:45 ET Chicago PMI
11/27 10:00 ET Pers Inc & Cons Spndg
11/27 10:00 ET Core inflation
11/27 2:00 pm ET Beige Book

Key Economic Events Week of 11/18

11/19 8:30 ET Housing Starts & Bldg Perms
11/20 2:00 ET October FOMC minutes
11/21 8:30 ET Philly Fed
11/21 10:00 ET Existing Home Sales
11/22 9:45 ET Markit November Flash PMIs

Key Economic Events Week of 11/11

11/12 Three Fed Goon speeches
11/13 8:30 ET CPI
11/13 11:00 ET CGP on Capitol Hill
11/14 8:30 ET PPI
11/14 Four Fed Goon speeches
11/14 10:00 ET CGP on Capitol Hill
11/15 8:30 ET Retail Sales
11/15 8:30 ET Empire State Manu Index
11/15 9:15 ET Cap Ute and Ind Prod
11/15 10:00 ET Business Inventories

Key Economic Events Week of 11/4

11/4 10:00 ET Factory Orders
11/5 9:45 ET Markit Services PMI
11/5 10:00 ET ISM Services PMI
11/6 8:30 ET Productivity & Labor Costs
11/6 Speeches by Goons Williams, Harker and Evans
11/8 10:00 ET Consumer Sentiment
11/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/28

10/30 8:30 ET Q3 GDP first guess
10/30 2:00 ET FOMC fedlines
10/30 2:30 ET CGP presser
10/31 8:30 ET Personal Income & Spending
10/31 8:30 ET Core Inflation
10/31 9:45 ET Chicago PMI
11/1 8:30 ET BLSBS
11/1 9:45 ET Markit Manu PMI
1/1 10:00 ET ISM Manu PMI

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