Are Treasuries Poised for a Breakdown ?

After last Wednesday’s Federal Reserve (FOMC) announcement, the aspect that most impressed me about Janet Yellen’s comments was how “dovish” her commentary was, revising down GDP estimates, making moderate comments about inflation and growth, and in general sounding quite “bond friendly”.

And yet there wasn’t much of a 10-year Treasury rally in the days following the Fed Chair’s remarks.

On Tuesday morning, June 23rd, both Germany and France’s Markit Composite PMI beat expectations, rising to 54.1 in June, versus 53.6 in May.

The German 10-year Bund is now trading around 85 bp’s, down from its 99 bp high tick in early June, but well above the record low 7 bp’s in seen in April -May ’15.

Watching the Treasury action, I’m wondering if Europe and the EU isn’t a bigger factor than the US economy in determining US interest rates: a recovering Europe could mean higher German and France interest rates, and a less strong US dollar.


June 10th was a critical day for US Treasuries, The 10-year and 30-year Treasuries hit recent yield highs and the TLT printed a near-term price low:

TNX: 2.49% high yield hit June 10th, closed at 2.41% today, June 23rd.

TYX: 3.22% high yield hit June 10th, closed at 3.20% today, June 23rd.

TLT: the iShares +20-year Treasury ETF hit a low on June 10th of $115.26, and closed at $115.95 today.

10-year German bund: 1.05% high yield hit June 10th, closed near 85 bp’s today.


The proximity of the TYX to its June 10th, high yield tick tells me that the yield curve is starting to steepen, which usually implies faster growth and rising inflation expectations.

I’ve always thought the hand-wringing and weeping and gnashing of teeth over Greece was financial media fear-mongering, but if some meaningful resolution can be arrived at on Greece, keeping it in the EU, which would imply that substantial political capital can be spent on actually growing the German, French and other EU economies, rather than arguing with the Greeks over doing something they should have had the wherewithal to do years ago, perhaps that agreement could finally be the tipping point for Treasuries.

The 10-year German bund yield trade above 1.05% would be a good tell too.

Housing data has been surprisingly strong – don’t underestimate what that means for the US economy. Warren Buffett once mentioned that housing-related companies made up something like 30% – 35% of Berkshire portfolio, given its importance to the US economy.

Calling a bottom for Treasury yields since March ’09 has been like calling the top in the Nasdaq from 1995 – 2000. It has been expensive and painful.

I’m wondering if we are finally getting there.

Key 10-year yield levels are 2.50%, 2.62% (2014 mid-year high) and then finally 3% (late 2013 high).


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