Bond Meltdown! Skyrocketing Rates!

Posted by Mike Larsen - Richard Russell Comment

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10 year Treasury Note Yield

Danger: Rising interest rates. The chart below shows the interest on the bellwether 10 year T-note. I noted a head-and-shoulders bottom on this chart (check out the red arrows).  – Richard Russell of Dow Theory Letters

10 year Treasury Note Yield

Fed money-printing scheme triggering bond price meltdown!

Since talk of new money-printing first surfaced a few weeks ago, 30-year bond yields have jumped sharply higher — from 3.46% to 4.32%. That’s a 25% surge in borrowing costs!

It’s the biggest interest rate rise in a year — and it’s showing no signs of slowing. Yields surged yesterday after a lousy auction of 10-year Treasury Notes. Then they surged AGAIN today after the sale of $16 billion in 30-year Treasury bonds bombed.


Ironically, this is exactly what Bernanke said would NOT happen:

In fact, the Fed chief’s main excuse for printing $600 billion over the next eight months was that the money was needed to buy up bonds and LOWER long-term interest rates!

But just as we warn in our online presentation, global investors in U.S. bonds are recoiling in horror — and for good reason:

They know that the Fed money-printing will drive the REAL value of their bonds down sharply!

No wonder they’re dumping U.S. bonds, driving the prices lower!

And no wonder they’re demanding higher yields, driving long-term interest rates higher!

Moreover, bonds are just ONE of the five asset classes directly impacted by the Fed’s new money-printing scheme. The others are:

* Currencies. As the Fed drives down the value of the dollar, it drives UP the value of major foreign currencies. Meanwhile, right now — TODAY — the Fed’s money printing plans are wreaking havoc at the G-20 meetings in Seoul, South Korea.

The main problem: Foreign nations are concerned that this massive supply of newly-created dollars will flood into their economies and drive their currencies through the roof!

* Precious metals. Despite a correction that began last night, gold and silver are still in massive, long-term bull markets.

* Agricultural commodities. Since QE2 talk began, commodities have been on a tear. They’re rising even faster than bonds are falling.

* Stocks. QE2 has mixed impacts on the U.S. economy and stocks. But for emerging markets, the combination of strong domestic growth and a rapid influx of U.S. dollars has been extremely positive.

Lots of opportunity!

Best wishes,

Mike Larson

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