Sunday, October 24, 2010

US Long Bond Bubble:

Let us pass on the Dominant Theme investing observations this week and take a quick look at the current sell-everything and buy US T-bonds movement. Many long bond bulls are basically berma-bears who believe that anyone who owns anything else such as a house, stocks, collectables and even gold are dummies

Our chart is about 30-years of monthly closes of the 10-year US T-bond yield. Remember the bond price and the yield are inverse – so a long 30-yr downtrend in yields translates into a long 30-uptrend in the US 10-yr T-Bond. This long advance in the 10-yr T-Bond was a secular advance or secular bull with this one having 5-shorter bull and bear cycles (see the secular cycle count on the chart). I have also placed a simple Elliott Wave count 1-2-3-4-5 with wave three (2 to 3) subdividing into a (1), (2), (3), (4) and (5) wave count. So who is correct the bond bulls or bears? The acid test is the price – the bond bulls need a new low on the yield (under 2% ) and the bond bears need a move above 4% to confirm a long term sell-of-a-generation on bonds


Shawn Severin said...

I've viewed this chart using Yahoo finance dozens of times and am amazed each time. When the long term trend does formally reverse, we should get a huge short term rise into the high 30s range followed by a long term multiyear secular advance coinciding with the equity advance.

Piazzi said...

under elliott wave, waves 4 and 2 should not overlap

your (4) and (2) overlap

it might be OK if it were an ending diagonal, but it does not seem to be

regards said...

Good Observation

Piazzi is correct - wave 4 should not stray into wave 2 - but when you look at ABX in US$ on the NYSE there is no violation - I should have posted the US$ chart - the big volume is there anyway

Thanks Piazzi