That the US Bond market is a bug in search of a windshield is widely accepted by informed market watchers. The FED has backed itself into a corner from which there are few options for escape. And none of the options bode well for the longer term health of the US Bond market. This past week was a preamble of what lies ahead at some point in the future – US Ten Year Bonds – a critical benchmark – reacted with alarm at Bernanke’s “hint” that QE might be tapered off later this year. One can only wonder what the reaction will be when the word comes that it is ending now. Personally, we think that the end of QE is still a long way off – and its end may be dictated by the market rather than the FED. The FED has a rich history of doing whatever it does far too long. Creating money out of thin air is not sustainable indefinitely – and the market, for all its ability to exhibit temporary insanity, will wake up one day and say, “it’s time for it to be over”. We do not want to be long US Bonds when that day arrives!

Meanwhile, back at the ranch, this week’s volatility in the US Ten Year Bond market produced a phenomenon we do not see very often with our TBL trading method. On the chart for the US Ten Year Bonds we have no secondary SRVs at all. This is very rare in any market – and only happens when a market experiences a major move in one direction. The yellow oscillator we use to locate our short term SRVs is significantly affected by large moves to the down side and the result is that we will not get secondary SRVs until the market stabilizes a bit more this coming week.

 

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