Friday, July 1, 2011

Five Year Treasury Notes Collapsing

The five year Treasury note has just experienced the biggest weekly percentage decrease in the last 20 years.

Here's a chart of the record via ZeroHedge:

Important to note is that at the EPJ Daily Alert, I have been warning that the Treasury market would collapse, but that the stock market would climb. This forecast has prompted many emails from subscribers questioning how the two events could happen simultaneously. Well the events are occurring simultaneously. Despite a terrible week for Treasury securities, the stock market has been strong all week.

What's going on is a flight from the dollar, which is limiting Treasury purchases (especially out of China) and slowly developing price inflation fears, which is adding a inflation premium to interest rates. At the same time Fed money printing is fueling a climb in the stock market. At some point, I expect the interest rate climb to get out of control. Then what is Bernanke going to do?

Update: Dow Industrials surge 648 points--a gain of more than 5%-- over five-day winning stretch.


  1. Saw this in my bank statement, is this an indication there will be a tad bit more money in the system available to lend, overall?

    "Notice of Change to the Deposit Account Agreement and Disclosure for certain sections of the U.S. Bank's Funds Availability Policy. The sections entitled Immediate Availability - All Accounts and Longer Delays May Apply - Case By Case is updated to reflect that the $100 availability amount is scheduled to increase to $200 as of July 21, 2011 and is subject at all times to future revision to conform to changes that may be made by Regulation CC."

  2. As usual, Bob, your call was spot on. I'm sure the Keyn-tards are frantically trying to figure out why and how something like this is happening, since their models and formulae say this is an impossible development.

    Wonder how the Bernank and P-Krug will spin this.

    My fear is that something like this, combined with some other "black swan" event, will result in a rapid and uncontrollable rise in interest rates thus precipitating some level of systemic failure. Care to give odds on such an event?

  3. @Dale

    100%. It will happen. Timing is the tough part. There's a very good chance it happens by the end of the year, but I don't think we get out of 2012 without the bond market crashing.

  4. No quibble with Wenzel here, but a slight one with the ZH chart presentation. "Change in %" is only meaningful if the zero level is meaningful. By this measure, the Fed Funds rate moves 100% some days. There's a reason why temperature is not quoted in percent change (non-Kelvin scales, that is).

  5. Does this mean that it is time to buy funds such as TBT (ETF) and DLBS (ETN) that are short on treasuries? Are you shorting treasuries yourself? How?

  6. The DOW is going to 60K.... but a loaf of bread is going to $28 a loaf... if you can find it.

  7. Duh ... there's less demand for bonds now that Fed buying has supposedly stopped. Care to wager that next week will see a repeat of the same?

    Oh, and BTW - if the Fed has supposedly also caused all this inflation then why were both corn and wheat futures "lock limit down" on Thursday?

  8. In his book, "The Economic Consequences of the Peace", (after WWI) John Maynard Keynes wrote: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. – As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

    "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

    So Obama, Geithner, Bernanke, Greenscam., et al., avowed Keynesians all, are in total agreement with Lenin and Keynes as to THE very BEST way to destroy America and the world.

    How strange!

  9. The US$ will be here in 100 years ,,,,,

    and the value ,will be 99%,,,,


    TOP SOIL,,,,,How much then ?,please reply.