Tuesday, July 22, 2014

"The Case For Higher Rates Looks Weak… Again"


"The answer, of course, is that the economic profile is still too weak to support higher rates. You can argue, as many do, that it’s all a mirage and that the Fed is artificially holding down long rates. Maybe, but that argument is weak once you consider that private holders of Treasuries include investors the world over and Fed policy doesn’t preclude those investors from selling and driving up rates."
Our hypothesis: Fed purchases of from the flow of Treasury issuance caused interest rates to be higher because the stock of fixed income instruments vastly exceeds the size of the flow of purchases, and those purchases made the holders nervous about inflation.


theyenguy said...

The case for Interest rates going higher has come of age as David Kotox posts Financial Sense posts Tapering Is Now Tightening.


Josh H said...

So where do you get bearish at? 2%, 1.5% or are you waiting for technicals to get you out? While I am not outright shorting bonds, I am not interested on the long side either.

CP said...

I don't see why the U.S. 10 year should yield any more than German 10y.

Target of 1.5% sounds about right, but maybe most important is sentiment. I would get out if the competition turned bullish.