Rather than analyze the technicals in the Treasury market ad nauseum, on top of every other market Einstein who has offered their 2 cents, I'd first like to serve up one of the primary and basic reasons the Treasury market is selling off. Reuters released this report yesterday in which an academic member of China's central bank monetary policy committee stated that "America's fiscal health is worse than Europe's...[and] that U.S. bond prices and the dollar would fall when the European economic situation stabilized." Here's the LINK
Well, there you have it. China, after the Fed, is the largest holder of Treasury bonds. I don't care what anyone out there in the land of financial analysis has to say, the Chinese are either directly selling, or indirectly hedging, their massive position in the U.S. dollar/Treasury bonds. That statment confirms this. Let's see, he says the dollar and T-bonds will be stable/rally for a year. ROFLMAO. This guy clearly has borrowed a page from Bill Gross' script in which he expresses a view via CNBC to the world on the bond market while at the same time selling into the bid his comments create. I've witnessed this first-hand as a bond trader in the 1990's. The indirect hedging would be via China's well-known aggressive purchasing of basic commodities, especially industrial metals, and its now well-understood aggressive accumulation of gold and silver.
I'd like to end this segment with a quote from a well-informed trader in London about the game going on in the Treasury bond market with the Fed and JP Morgan:
“It’s all about the bond auctions, the bond fell off a cliff. In the derivatives market you’ve got JP Morgan playing the bond market at the behest of the Fed, going long 30 years versus selling short-term paper. They buy 30 year paper and then immediately hedge themselves by selling the 30, 60 and 90 day paper. It’s how they keep interest rates down, it’s how you do it. The only reason interest rates are not in double digits in the US is because of this game. These guys are short front month paper. If this (the bond market) actually fell much longer, JP Morgan could be wiped out, I mean they would be liquidated. The Fed cannot allow them to do that. We’re witnessing history here.Here's the link to this from the King World News daily blog: Buy Gold, Dump Bonds
This reinforces my view that nominal interest rates in the U.S. are completely under the manipulation of the Fed/Wall Street in order to try and stimulate an economic recovery. Unfortunately this will fail badly. Real interest rates (nominal rates minus true inflation) are extraordinarily negative. That fact is the fuel powering the precious metals inexorably higher. As the rate of real price inflation accelerates (NOTE: true inflation vs. Government reported/manipulated CPI price measures), this rally in precious metals will also accelerate and leave many behind.
Update on Munis
In brief, if you respect the value of your investment portfolio, get the hell out of your muni bonds. The only munis I would even think about owning are defeased munis (munis which have their call-date or maturity pre-funded with cash in trust). Here's the latest chart as of yesterday's close: