The bonds have sold off very, very strongly a few times over the last few months. You can almost feel the glee of the “higher Yields!” crowd radiate from the screen on these days. But even on these selloffs, bonds haven’t made new lows. The lows for each of the down days have been 1 or 2 ticks higher than the prior low. They just cannot muster that final push to actually make a new low.
- 109-09 on 1-20
- 109-08 on 1-05
- 109-06 on 12-28
- 118-21 on 12-15
Remarkable. But on the other hand, the 10 year is making what appears to be a flag in the weekly chart of yield. This is something to watch. The breakout from that formation could be quite powerful. This is a flag because of the quick runup in price, but it could also be considered to be a wedge formation. In either case, this rapid movement followed by consolidation tends to mean that there is lots of “energy” stored up in the formation. Once one side capitulates, the movement out of this formation could be large.
I am really bullish bonds and bearish yield, but this formation could just as easily explode higher as it could lower.
Xie gets cause and effect wrong. China locked their currency to the U.S. dollar, not the other way around. Blaming the U.S. for wanting to feel the effect of QE is projection – a basic psychological error.
QE I (thats right – the first round, much less QE II) would not be viewed as necessary without the Chinese Currency lock. If china had let their currency float 3 years ago, the Yuan would have been at least 10% stronger now. The first round of QE would have caused 2.5 to 3% inflation in the U.S. and other countries. Chinese inflation would be much less as well.