Essential Bond Market Reading

February 3, 2009 · Posted in Strategic Insight · Comment

We are seeing movement in the US Treasury bond market recently that is consistent with our investment thesis that bond yields will move sharply higher as the volume of sovereign debt coming to auction this year swamps the global market’s ability to absorb it.

The following recent articles on Bloomberg provide the initial evidence that conditions are in-fact starting to move in that direction. We recommend readers review them.

Treasuries Drop as Auction Draws Higher Yields

Start of US Depression that Will Increase Gold Price

Treasury Yield Curve May Steepen

Treasury Real Yield at 16 Month High on Inflation Bet

The bond market today (o2/03/2009) saw rates rise across the yield curve due to a variety of factors including competition from the commercial paper market, concerns over the sovereign debt markets ability to digest the upcoming auctions and fundamental concerns about inflation - yes inflation, not deflation. See the article Treasury Real Yield at 16 Month High on Inflation Bet for more details. Readers will recall that we have stated inflation was the coming threat, not deflation.

In addition, we recommend readers review our post “Fundamental Trends” and “How a Reserve Currency Collapses”

We added a new Members Only Post “Why is the Dollar Going Up (and When Will it Stop)” yesterday.

Readers are encouraged to also look at the Members Only Post “The Coming Bond Debacle”.

We increased our precious metals positions again today. The turmoil in global financial paper will drive physical assets higher. We have more to say about this in the Members Only Post “Gold - Reluctantly”.

To view previous Members Only posts - “The Coming Bond Debacle” or “Gold - Reluctantly” simply follow the instructions under the “Become a Member” tab and select the “One Month Free Membership” when you get to the Products page. You must complete the checkout process in order for the Membership to complete. Registration is not sufficient. You are under no obligation to continue beyond the One Month Free Trial and your e-mail and address will not be shared with third parties.

We hold the following positions as of 02/03/2009.
Short Treasury Bonds through PST and TBT*
Long gold and silver bullion through CEF
Long gold mining stocks through TGLDX
Long Agricultural commodities through RJA
Short US dollar through UDN**
Long Australian dollar through FXA**
401k remains 100% in cash

*ProShares leveraged short ETF. Investors need to understand thoroughly the risks associated with these leveraged products in light of their personal investment needs and risk tolerance. They may not be suitable for all investors.

** Position is currently in loss but we are sticking with it as we believe the fundamentals will drive the dollar substantially lower.