Bond rally nearing an end?

Agree, rates are not coming down any time soon. And shouldn't!

Long term rates are still lower than recent historical levels. And are still not competitive with the rates of return that the stock market offers. Until that occurs, the stock market will continue to rise and long term rates will rise as well.

Lets not forget, the conundrum. While Greenie was raising rates in 2005 the bond market was rallying. There is no reason to think that bonds will not again soon start declining. As there is still no indication that the FED is done raising rates.

This is the best it gets for the Bond market!
Fed pause
Commodities tanking
Economy slowing
Inflation moderating
Housing slump.

Close to a TOP in this medium term rally in an ongoing Bond bear market. Be careful!
 
Agree, rates are not coming down any time soon. And shouldn't!

Long term rates are still lower than recent historical levels. And are still not competitive with the rates of return that the stock market offers. Until that occurs, the stock market will continue to rise and long term rates will rise as well.

Lets not forget, the conundrum. While Greenie was raising rates in 2005 the bond market was rallying. There is no reason to think that bonds will not again soon start declining. As there is still no indication that the FED is done raising rates.

This is the best it gets for the Bond market!
Fed pause
Commodities tanking
Economy slowing
Inflation moderating
Housing slump.

Close to a TOP in this medium term rally in an ongoing Bond bear market. Be careful!
 
Agree, rates are not coming down any time soon. And shouldn't!

Long term rates are still lower than recent historical levels. And are still not competitive with the rates of return that the stock market offers. Until that occurs, the stock market will continue to rise and long term rates will rise as well.

Lets not forget, the conundrum. While Greenie was raising rates in 2005 the bond market was rallying. There is no reason to think that bonds will not again soon start declining. As there is still no indication that the FED is done raising rates.

This is the best it gets for the Bond market!
Fed pause
Commodities tanking
Economy slowing
Inflation moderating
Housing slump.

Close to a TOP in this medium term rally in an ongoing Bond bear market. Be careful!
 
I really like your reasoning. But the problem is the volatility levels. This means that the market does not expect 1980's long-end type rates anytime soon. They generally believe the Fed is transparent and hang on every word they say, meaning inflation is contained and will not become wildly out of control. Your reasoning could work very well in a flattening trade (even at this point). Selling the 2yr and buying the 10yr if you believe the Fed has more to go yet. Ultimately the major bond bear markets of the 1980's would start to occur again if the Fed remains on hold, and some event causes the expansion of risk and inflation premiums in the long end. Not just a small expansion of 100 basis points, I'm talking 500 to 1000 basis points (this is when implied volatility will be back above 10% across the curve). I think it will have something to do with the biggest holders of US Treasuries (Asian accounts) at some point. Doomsday scenario where the 2yr will be 5% give or take 100 bps and the 10yr out to 30yr curve will be trading something like 10-15%.
 
Tron, please put down the ritalin-laced crack and delete the two superfluous posts. Thanks.

tron2.jpg
 
Quote from mcurto:

I really like your reasoning. But the problem is the volatility levels. This means that the market does not expect 1980's long-end type rates anytime soon. They generally believe the Fed is transparent and hang on every word they say, meaning inflation is contained and will not become wildly out of control. Your reasoning could work very well in a flattening trade (even at this point). Selling the 2yr and buying the 10yr if you believe the Fed has more to go yet. Ultimately the major bond bear markets of the 1980's would start to occur again if the Fed remains on hold, and some event causes the expansion of risk and inflation premiums in the long end. Not just a small expansion of 100 basis points, I'm talking 500 to 1000 basis points (this is when implied volatility will be back above 10% across the curve). I think it will have something to do with the biggest holders of US Treasuries (Asian accounts) at some point. Doomsday scenario where the 2yr will be 5% give or take 100 bps and the 10yr out to 30yr curve will be trading something like 10-15%.
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What's the time frame for such a large move mcurto? prem is being sucked dry outta the market right now, so like you said, the fed seems to be in control for now. Inflation? What inflation? Ya, would have to be some serious macro stuff to cause a stir, right now the guys selling Vol have it right.
 
Quote from mcurto:

I really like your reasoning. But the problem is the volatility levels. This means that the market does not expect 1980's long-end type rates anytime soon. They generally believe the Fed is transparent and hang on every word they say, meaning inflation is contained and will not become wildly out of control. Your reasoning could work very well in a flattening trade (even at this point). Selling the 2yr and buying the 10yr if you believe the Fed has more to go yet. Ultimately the major bond bear markets of the 1980's would start to occur again if the Fed remains on hold, and some event causes the expansion of risk and inflation premiums in the long end. Not just a small expansion of 100 basis points, I'm talking 500 to 1000 basis points (this is when implied volatility will be back above 10% across the curve). I think it will have something to do with the biggest holders of US Treasuries (Asian accounts) at some point. Doomsday scenario where the 2yr will be 5% give or take 100 bps and the 10yr out to 30yr curve will be trading something like 10-15%.
More...

The kind of time bomb (probably currency crisis) you speak of is probably some months away. But thus far the Bond market suggests that it is coming.
Agree the FED is and has purposely been transparent. We pretty much know what they are doing before they do. :)
With crude and gold in a tailspin, and the economy slowing. The FED will probably want to pump more liquidity into the system to spur business/banking activity. We're running at acceptable capacity now. But if it pulls back abruptly, the FED will act quickly.

At the beginning of 2006 they all said rates will hold steady throughout the year. I am already starting to hear that again. If it becomes the consensus ... SHORT!
 
Quote from riskarb:

Tron, please put down the ritalin-laced crack and delete the two superfluous posts. Thanks.

tron2.jpg
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They have ritalin now :)
I tried but they only give you 30 minutes to do so.
My time ran out hours ago.
So you get three times the nonsense.
 
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