January 4, 2017
The LIBOR (London Interbank Offered Rate), which is about as honest of a system as the Gold Fix, just went above 1% for the first time since May 2009. The US Treasury Debt market is in a secular rising interest rate environment. Short term rates hit their secular low in September 2011. Long rates hit theirs in July of 2016. In the last secular low in yields/bond bear market, which was a 35-40 year (depending upon duration) rise in interest rates, 3 month yields bottomed in 1940 at 0.02%. They rose to 17.1% in December 1980. Long term yields bottomed in 1946 at around 2% and then rose to 15.81% in October 1981. There was about a 5 1/2 year lag between short term and long term rates in the 1940’s and a 4 3/4 year lag in this time frame.
Currently short term rates are continuing to rise. Recently the long yield topped on December 12th at 3.2%, but today it hit a multi-week low. The yield curve is flattening, yet now there is widespread speculative bearishness on bonds. The Trumpflation trade (allegedly) has nothing but clear skies ahead for the $, stocks and some commodities, yet cloudy skies for bonds and PMs. What could possibly go wrong with that unanimity. Bearish, fearful stories about a bond market crash abound, but we’ve already had a mini-crash in bonds. The people who have just figured out bonds are bearish are a bit late to this leg of the party. The 10 year yield went from 1.32% on July 6th to 2.62% on December 15th. More than doubling in about 5 months – that’s a crash, if only a small one, and also understanding rates are so ridiculously low that percentage moves are amplified. There will be more of these over the years in bonds, but no market goes in a straight line every month.This 30 year yield chart has been posted here many times, but I believe it is the most important chart around. It is to me the “schematic” of the level of confidence in central banking. So far it hasn’t gotten out too much of hand, but it will. And it will be another bullish factor for PMs and commodities in the second half of 2017. It’s likely the sustained push above 4% is where the bond trade starts to get out of hand. But in the meantime, once we get into a mid-January time frame, the yields could have a surprising retracement (down). Longer term the US Treasury market will slowly lose its’ safe haven status and this will have big impacts on other markets. And I do believe it’s really the second half of 2017 when many of the lingering fundamental concerns are going to start colliding with markets.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.