Is the bottom in? Get real.

All true…especially the part about Japan. The counter argument to longer rates rallying is the fact that U.S. will be in slow growth/recessionary mode for many years to come. See Japan.

To be honest, I’m not a scholar on Japanese financial history, so I don’t know how much debt raising they were doing to inflate themselves. I know their rates have been very low forever, but did they swap massive amount of govt bonds in exchange for crap. And was China sitting on Trillions of debt looking to cash in to support theirs own economy? Was Japan simply doomed from the start because of the makeup of their population?

The deal is that everyone knows all this…if “we” know this, then the Trillion dollar U.S. bond market knows all of this….so I’ve been waiting on some technical evidence to conclude it’s OVER for the long bonds….and I’m starting to get some of that evidence. I could be wrong….and I’ve got stops on the trade….If the 10 yr Dec futures start trading above 117′oo, then I’ll be proven wrong technically shorter term.

- AT.

“Will the U.S. longer term bonds be the last asset domino to fall? Will the ever- steepening yield curve go completely parabolic?”

I’m inclined to think so, but it’s a question of timing. We probably won’t see a big rise in T-bond yields over the next 12 months. But at some point thereafter, I do think that could become an issue. The bear case for T-bonds rests in part on the mortgage-based assets and other collateral that the government will be holding. The Fed is holding mortgage-based assets on which they have (thus far) lent two trillion dollars. The new plan is for the Treasury to accept assets based on credit card debt and car loans (in addition to what the Fed is holding). After all is said and done, the government (Treasury plus the Fed) could be sitting on many trillions of dollars worth of “stuff”. Given that, the Fed may be under pressure to inflate the nominal value of that collateral, or at least to keep that collateral from declining in value. Hence the Fed is likely to be restrained in any tightening of monetary policy that would otherwise occur in 2010. So that creates potential inflationary pressure, which could push up T-bond rates.
Then of course, the higher the debt-to-GDP ratio, the greater the pressure to monetize the debt. And of course the deficit will be rising, although the government will no doubt play all sorts of games with the numbers.
(The only thing that gives me pause in this analysis is the low rates on government bonds in Japan).

The stock rally started as we bounced from technical levels around 1PM. The sell off in bonds did not occur until well into the stock rally close to 2PM.

This was almost an entirely psychological rally, compounded by short covering and piggybacking. The bond sell-off may have helped, but it was NOT the cause.

What on earth makes you think technicals apply in this market? There is simply too much meddlingfor any of it to work. What technicals factor in the scary FED charts? How about NONE!

The horribly expensive long bond auction today is what caused this rally. You guys need to look at ALL the data before you make ridiculous proclamations. Jeeze, I’m not even an active trader and I can clearly see what caused this rally.

Remember a long, long time ago (a few months) when everyone was saying:

“We just need the dollar to rally so that Commodities will come down…then we’ll be ‘OK’ ”

That same crowd…and I mean the VERY SAME crowd is now saying:

“We need to get investors out of these US bonds and get them into riskier assets…when Interest Rates start going up, then that will be a good sign and then we’ll be ‘OK’”

There’s been loads and loads of bond guys that have come on CNBC the last several months talking about the US bond bubble out there….until now I sort of wanted to always fade them because it meant they were really short “the irrational long bonds”….but I’m starting to think that the long bonds are very vulnerable to a sharp decline.

And, while the madding crowds may at first cheer the fall in the long bonds, just like they did with the stronger dollar, a long bond that really falls out of bed will not be a good thing…..

Will the U.S. longer term bonds be the last asset domino to fall? Will the ever steepening yield curve go completely parabolic?

It’s what I’m now thinking about late this night…

- AT