Treasury bubble bursting ?

January 27th, 2009 | economy, investing, usa

The treasury bubble might be finally bursting - the 10-year yield has shot up by nearly 30% in the last few weeks (remember that Treasury yields move inversely with the price).

A bursting of the Treasury bubble would be bad news for two very important constituents. Firstly, large treasury bond holders (like China) would suffer capital losses on their investments. Secondly, an increase in long-term lending rates is bad news for businesses and homeowners who want to borrow long-term.

And so in this monetary policy chess-game, there are rumors that Bernanke is now considering buying long-term treasuries. There is a strong possibility that this is just jawboning. Bernanke is trying to get Treasury prices up (and yields down) simply by threatening to buy Treasuries.

If the market calls this bluff and still refuses to bid up longer-term treasuries, it could force Bernanke’s hand - either he risks losing credibility, or he unleashes yet another round of massive market distortions.

5 comments ↓

#1 Amit C on 01.27.09 at 9:26 am

Hi Sumedh,

Which SW\Website is the chart from?

Thanks
Amit

#2 sumedh on 01.27.09 at 9:30 am

Hi Amit,

It’s from Worden Telechart.

~sumedh

#3 Amit C on 01.28.09 at 7:15 pm

Pretty Cool, which subscription do you have, Gold?

Thanks a lot.
Amit

#4 sumedh on 01.28.09 at 11:47 pm

Yes the Gold subscription - and I also use “Worden Blocks”, a free version that works almost as well.

But now I can’t find a link to it on Worden’s page (although its still working for me.)

#5 Amit C on 01.29.09 at 11:46 am

Cool, Thanks again.

Doing a web search shows it should work till Dec 2010.
http://www.trading-to-win.blogspot.com/2008/11/worden-blocks-is-changing-to.html

Can you please email me the link or post it here, I would like to try it out.

Thanks
Amit

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Treasury bubble bursting ?

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