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Juicy, Juicy Treasuries ready to rally

January 5, 2011

Talk about a pregnant chart – look at that inverted wedge with a flat top, at the end of a long selloff.  That chart looks like we could have a 2 point pop upwards at anytime.  Get long.

Lets face it, this little 2 month excursion of the Bond Vigilantes was fun, but all it did was steepen the yield curve.  Steep Yield curves are bullish for the economy.  When trading, I try to be in trades that reinforce themselves, not trades that self-destruct.

We know the fed will not let the short end raise until we see real inflation.  So any gains in long end yield make the spread go out.  We are at near record levels in the 2/10 spread.  This near record yield spread is very bullish for stocks and the economy.   This would be helpful to the BV case if there was big inflation risks in the short term, but we do not seem to have much inflation.

The yield curve is one of those classic indicators that it pays to check.  If 5-10-30 years Treasuries rally, real rates go down as long as inflation remains tame.

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