Interest Rates – What’s Next

Posted by Greg Weldon - Weldon's Money Monitor

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This brief comment from the extensive analysis contained in Greg’s 13 page Weldon’s Money Monitor. Michael Campbell calls Greg Weldon – “The One Analyst other Analysts can’t Wait to Read.”


From rock-and-roll legend Neil Young …

“Every time I think about back home, it‟s cool and breezy. 
I wish that I could be there right now, just passing time. 
Everybody seems to wonder what it‟s like down here. 
I got to get away from this day-to-day running around, 
Everybody knows this is nowhere.”

While the Fed may have maintained their “extended period of time” comment, in private, they are likely thinking about “back home”, where it’s “cool and breezy”, and where policy is “normal”. 

The Fed is thinking in terms of getting away from this day-to-day running around, whereby they are expending all of their energy trying to determine the best ‘exit strategy approach” — to drain reserves, or sell securities, or raise official short-term interest rates — in order to rebuild an interest rate structure that will make the Fed feel like they’re “back home”.  

The Fed would like to “be there, right now”, because EVERYBODY KNOWS, that the current monetary situation is “nowhere”. The market is beginning to respond with a move to “price-in” action by the Fed.

.Ed Note: the snippet below is from further down in Greg’s 12 page Money Monitor

“Stepped up Central Bank purchases of US Treasuries, in line with the fall-out from the Goldman “hearings”, and the continuing EU debt-deficit-debacle appear to be pushing bond yields to the downside today, although, we might offer an alternative explanation. Perhaps the push higher in short-term “funding” rates and MBS-linked “credit spreads”, amid thoughts of an actual “tightening” in monetary conditions, could be seen as “beneficial” to bonds … since it may inhibit an additional rise in inflation expectations. 

Indeed, the US bond market appears perched on a precipice, with a potential breakdown in yields in the making, as evidenced by the technical overview offered in the pair of charts seen below. We start with the “long- end”, by observing the 30-Year Treasury Bond yield, which is threatening to violate key underlying support defined by the uptrend line in place since last year’s “swing-low”, the med-term trend defining 100-Day EXP-MA (last at 4.58%, with the yield last at 4.59%). We also note the recent push into “negative” (lower yield) territory by the med-term Oscillator. A move below 4.47% would confirm a bigger picture technical breakdown in yields.



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