Out at the peak

Thursday, January 26, 2006

The future of bond yields (discussion)

People are talking about bonds more these days especially since 10-yr bond yields reflect mortgage rates. There are many factors to take into account. Some include demand for bonds from central banks. If they decide to diversify into commodities, bond prices will drop (yield will rise). The reissue of 30-yr bond will lower 10-yr bond demand as capital is diverted.

Historically, demand is high because it was considered a safe haven during times of recession. But fear of the USD decline might reduce demand this time around.

"With the 10-year Treasury trading around 4.45% yesterday it was still 40 BPS below the level it traded before the Fed began its rate hike parade 18-months ago! Of course, it will be interesting to see what happens in the next couple of months, as $169 Billion in debt is issued this quarter, 17% more than was issued in the first quarter of 2005. Of that $169 Billion, $85-88 Billion will be in the 10-year Treasury... So... I look for this yield to finally crack and go higher..."
- Chuck Butler, 1/26/06, The Daily Pfennig

Mr. Butler has a very good track record from my observation. He brings up a scary point of how much more America is going in debt. There is a limit of funds that can continue to support this behavior. Bush keeps running us into the ground and has false promises of turning around.

Anyway, I am trying to get a consolidated discussion/debate on where bond yields are going.


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