Attached is a chart of the 30-year treasury bond yield, and please observe that lower yields mean higher bond prices:
There are probably a lot of speculators out there with long positions in the bond, wanting to take profits. There are probably a lot of speculators out there with long positions that want to see even greater amounts of profits.
Ben Bernanke’s statements today was obviously a catalyst for the downward price movement in bonds. When reading the speech, I generally do not take the media’s perception that he was saying anything new with respect to inflation or any future use of monetary policy. I am forced to conclude that this was a technical correction of expectations rather than any reaction to pricing in future policy decisions from the Federal Reserve.
Traders that have used increases in bond yields to add to their long positions have profited handsomely over the past 4 months; will it be the case here? Time will tell. Every technical analyst out there will point out the slope implied by the chart, and see that the y-intercept at the right hand side of the chart is around 4.0%. The question is whether the market will take it there or not.
This has always been one of my big beefs about technical analysis – its ability to predict the future is not good, it is always in retrospect you can construct these “trends”, “resistances” and “support” levels. Does four months of downward yields mean the next four months will be the same? What about two months of data? Or six? What would signal a trend reversal? One month of rising yields? Two? Two days of trading? Again, it is always much easier to answer these questions in retrospect, which is why I do not have a lot of respect for technical analysts, although there is some value in the process because other people think there is value in it.
Finally, if long bond yields are truly rising again, it should affect the corporate long term debt market. I am continuing to liquidate my long term corporate debt positions and there are some other issues in my portfolio that are tantalizingly and/or frustratingly close to liquidation prices. Hopefully there will be a flood of retailers that will be bidding up these products for one final push before they collapse again in price.