Long Bond Could Trade At 4% And Below!

I’ve told you that I use technical analysis to give me a general impression of a stock, bond or commodities. This afternoon I glanced at the $USB, the chart of the 30 year Treasury (
see chart). It startled me to see that the daily $USB has fallen back to the 200-day moving average at 115.

Looking at the
Percentage Price Oscillator (PPO),

The Percentage Price Oscillator is found by subtracting the longer moving average from the shorter moving average and then dividing the result by the longer moving average.

it appears that the PPO is about to cross over reulting in a BUY signal. In January, 2008, the $USB went to the highest level since before 1999. Recently, the pullback from 122 to 115, looks like a correction to the main bull market. The chart looks like the rise is ready to resume.

What does all the mean? It means that Treasury Bonds are set to continue higher resulting in lower long yields. It means that interest rates are set to come down a lot! Bonds go up, yields go down.

The lows since since December, 2007 have been 4.26%, then 4.23% and lastly in March, 2008, at 4.17%. We are currently at 4.51%, just off from 4.61%. I could see the long bond trade at 4% and below!

BTW, the Two Year Treasury Yield (
$UST2Y) looks like the rally is over. It could go back and test the 1.35% low set in March. It is currently at 2.29% The Ten Year Treasury Yield (
$UST10Y) also looks like the rally is over . It could test the low yield of 3.34%. It currently is at 3.77%.

What does it all mean? It may mean the economy is weaker than we are being led to believe. It may mean there is a flight to safety. It may mean that the huge flows of capital directed at banks are finding their way into purchases of safe items rather than take a chance on loaning money.

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