A funny thing happened on the way to serious discussion about
tapering off Quantitative Easing sometime late this year: the
10-year Treasury Note rallied strongly from a yield over 2% all
the way down to 1.65%, only 25 basis points from its lifetime
lows hit last summer.
The bond market is sending a big message. But what is it?
a) QE will really continue well into 2014 and keep the long
end of the yield curve subdued with the short end.
b) Deflation is still a much bigger threat than inflation and
two groups of influential people know it: the doves on the FOMC
and big bond market investors. And apparently gold investors were
the last to find this out as many have been forced to flee their
monetary debasement hedge.
c) US equities are poised for a correction and so money is
hiding out in the safety of Treasuries.
d) This is mostly a function of the Bank of Japan (BOJ)
redoubling its QE reflation efforts and forcing expanded new
carry trades where you can borrow (sell) yen and invest in (buy)
higher yielding currencies and their assets.
e) All of the above, or something else?
Forget the "great rotation" nonsense that went around in the
past six months. If equities really are the place to be and the
economy is steadily improving, why is there so much demand for
safe-haven instruments yielding 1.65% for 10 years?
This is an important question to have some clarity about
because it can frame your outlook on the global economy and the
vibrant US stock market. So let me hear from you!
SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
PRO-SH 20+ TBI (TBF): ETF Research Reports
ISHARS-BR 20+ (TLT): ETF Research Reports
To read this article on Zacks.com click here.