Friday, November 5, 2010
Get out of the bond market… NOW!
Interest rates are breaking out.
In the past three weeks the 30-year Treasury yield has risen from 3.7% to over 4.6%. Here’s an updated chart…
It may not seem like much, but this tiny 0.9% increase indicates an important change in the long-term trend. We now have a two-month-long series of higher highs and higher lows. In other words, the Federal Reserve's attempts to manipulate the long-term interest rate market are failing.
We saw this trend kick off two weeks ago when rates spiked above 3.9%. Since then, long-term rates have mostly waffled back and forth. But the spike higher on Wednesday afternoon, following the Fed's announcement of the new quantitative easing program, should leave no doubt the trend has changed for long-term interest rates.
Bond prices have already fallen 3% in the past two weeks. And there are bigger losses ahead.
Once rates break above resistance at 4.1%, it's a straight shot higher to 4.3%. Above that level, however, there's nothing to hold back a rise to 4.8%. That's enough to crush the bond market and inflict serious pain on anyone who bought long-term bonds thinking the Fed was on their side.
Get out now while you still have a chance.
Best regards and good trading,
Jeff forecast the bond market's demise months ago. If you ignored his warnings then, it's time to start listening. Revisit them here: The Bond-Market Rally Is Going to End Badly.