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Subject:  Betting on the Direction of Interest-rates Date:  1/4/2013  8:50 PM
Author:  globalist2013 Number:  34598 of 35593

Well. The FOMC meeting minutes were the watershed event that brought a HUGE dollar rally yesterday afternoon and overnight. The euro lost 1-cent, the yen is at a 2-year low VS the dollar, Gold has lost $35, and Treasuries are getting sold like funnel cakes at a state fair! What, in the world is going on here? Ahhh, grasshopper, the Fed threw a cat among the pigeons yesterday by saying in their minutes that they thought they would end their latest round of Quantitative Easing (QE) in 2013. For those of you keeping score at home, that’s $85 Billion in monthly bond purchases. So, from that you can see why Treasuries are getting dumped,, but the currencies and Gold? And did the Fed Heads say when they would end their latest round of QE in 2013? NO! So, it could end up being on the last day of 2013, when they also announce a new round of QE! Did the markets EVER take a moment to think of that scenario? NOOOOOOO! They just went “all in” and began selling Treasuries.

The 10-year yield, which yesterday morning was 1.83%, has risen to 1.96% this morning. (remember, as bond yields rise, the price of the bond drops) So, is this the watershed event that could swing a multi-year rally for the dollar? What I’m talking about here is will the rising bond yields remove the need to hold risk assets? That’s what it appears to be saying today. But let me remind you that we have seen these moves higher in bond yields a few times in the past couple of years, and they didn’t end up being too much of anything. Remember, the Fed IS STILL BUYING $85 Billion per month! I also don’t think the dollar has the ability any longer to go on a multi-year strong trend. But then that’s just me, as I see the debt being a major problem for the dollar to deal with.
(from The Daily Pfennig, a free daily currency newsletter written by Chuck Butler)

Anytime any writer makes any claim whose import is sufficient to require action, the claim needs to be verified. One way to see if the 10-year bond is being sold is to pull a chart. So here’s a 5-day chart of ^TNX.^TNX+Interactive#symbol=^... Yep, it’s being sold, and aggressively so, with yields moving up an average of 4bps/day, which is HUGE. (Do the math. That’s the equivalent of 10% per year. That’s a HUGE move in the interest-rate world.) OK, the next step in dealing with any news item (and any commentary on any news item) is to discover whether the news is ‘new’. When, really, did Treasury prices start to fall (and interest-rates start to move up)? Well, pull another chart, this time one with a longer look-back, say, a 1-year chart of ^TXN.^TNX+Interactive#symbol=^...

Now we see why Chuck is saying what he’s saying, namely, “…we have seen these moves higher in bond yields a few times in the past couple of years”.

“Yeah, we have”, a good chartist would say, “and the price action since last August has been confined to a well-defined channel. But the Dec 28th reversal occurred in the mid-point of the channel, not the typical lower boundary, and today’s action put the yield above