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The record breaking decline in interest rates has caused two events to take place. A bullish falling wedge in yields and our Sector/Sentiment Update is reflecting that 77% of investors are bullish on bonds (see where have the bond bears gone post)
Falling wedges reflect a two-thirds chance that a product will move higher.
Doug Short shared in a post this past weekend, that the potential for higher rates is possible because wall street strategist were very bullish on bonds, suggesting the highest exposure to bonds in the past 15 years! (see post here)
Why didn’t they suggest this huge exposure to bonds, before rates hit their lowest levels in decades???
TJ…Too many Dollar bulls has taken place of late (81%), this needs to work itself off I believe.
Jim … the broblem is that in 2012 yields are down but S&P is close to the top ….something stinks..
Jim & Alex,
Yes, I agree. It would appear that a rate rise would generally mean bonds lower which means stocks higher. The real question here is scope of time. Maybe a short term bounce in stocks to get things “right” again on the interest rate front, then a further out drop. Hope I did’nt buy HDGE and SMN too soon. Chris, any further commentary?
This bottoming pattern is very bullish, no doubt. Alex, yields and stocks are highly correlated. If yields goes up, equities go up.
The interesting question Chris is what it means for stocks and how it fits in the picture with the rest of the indicators that are leaning bearish, like the transportation for instance. Could a spike in yields cause the market to drop? It would really be different this time!!!
NO, NO, NO ,NO and NO! Interest rates will not be ALLOWED to go up. That is no longer a market. It is a one way street. QE will be with us forever in this country. Once started, it cannot be halted.
Bernanke is unrestricted. He will buy every fixed income instrument in the galaxy if he has to, to keep rates here or lower.
Please do something else with your money besides trying to short bonds. It is not a real market anymore!!