Yes, bond yields will continue to rise.

Many fixed mortgage rates are tied to the 10 year bonds and many ARMs are tied to T-bills. People who borrowed with ARM's are going to be sorry next year.

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8/5/03 3yr T-Note auction: weak action.

Creation of Treasury Notes-

Like all fiat, creation starts with designation; in this case an auction or subscription.

On August 5, 03 the US Treasury held an auction for 3-year Treasury Notes to the tune of $24 USBillion. The bid/ratio was reported at 1.32. The previous T-bill action just 3 short months ago was 1.96. Would have to check, but I belive yesterdays bid/ratio, also known as 'coverage', was the worst since 1973.

Todays auction for 5-yr notes was a much more respectable 2.48 coverage. Obviously, some calls were made last night.

The one to watch is tomorrows 10-yr note auction.

The subscription rate , or coverage, is a demand indicator; in this case the demand is for USDebt, and the demand is weakening.

The bond market is as interesting a place as any. Heres what happen in a nutshell. Everyone got out of the market fast, wanted to find a safe place, current yields on new issues were being dropped by greenspan, and lack of supply drove bond prices far ahead of where they were supposed to be (kind of). When the floodgates opended and people thought they might be stuck holding a 110 bond with rising interest rates things came back to normal. You also have to look at the stock markets performance over the same interval although it supercedes a little.

Rates are still not back to there "normal" levels and yields will continue to rise on the long bond. We seen a relatively unique interest rate curve over the past two years, as the long bond rates rise the stock market will be rising to as institutions will not want to be holding their 107-108 bonds if current yileds begin to rise in anticipation of the fed tightening.

Although the above is likely to happen it is a crazy world we live in these days and who ever know what is going to happen with geopolitical events.

To keep it simple there is an inverse relationship between stocks and bonds. It is an easy concept to understand when stocks perform bad people pull money from stocks where do they put it in bonds of course and vice versa. The relationship with interest rates is harder to explain without writing a short book to keep it simple remember this rates rise bond prices fall, rates go lower bond prices rise as they have over the past two years.

not sure what your talking about please elaborate. The principle I discussed above is a basic market principle, money has to go somewhere so when rates are hiigh where do you think it goes? I know it goes to bonds, I am interested to hear where you think it goes though...

8/13/03: very poor day for US Bonds
starting to look like 1987 rather than 1998 as I earlier postulated, even a more bearish scenario.

everything plays out in its own way with the fullness of time.
metals spook paper as derivatives unwind.

The excepted rule is based on interest rates
As rates go higher people take money out of the stock market and buy bonds.
As rates go lower people as they cash out of bonds will buy stocks
So when the stock market goes up the bonds market is going down.
The problem now is everyone is chicken little and keeping more money in bonds or cash. They can buy a bond and know what their yield will be. When they think stocks they think enron. Smart money in my opinion is in real-estate but if its between stocks and bonds I put most of my money into stocks. I have to admit I now own some blended funds. Which I would of never done before but my time frame and strategy has changed. I dont want the short time volitility of the stocks.
I am now using my 401 as a money source. Borrow the money buy real-estate have the real-estate pay off the loan

Mich isnt there a name for when both markets head in the same direction?I seem to remember it also was used as an indicator for something.
You can learn from
aaii
powerinvestor
and dozens of others msnmoney cnnmoney

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To those who are overly cautious, everything is impossible

St. Michael,
I am trying to follow but I am not understanding. Bank interest is set off the bond market and prime rate. Yield is just a calculation of interest relative to your investment. Hence the higher the yield on $1000 the higher your interest rate.

Bonds and stocks move inversely. When interest rates are high people buy bonds (I mean they should), when low buy stocks (I mean they should)

To learn more go to Bondsonline.com they have great literature I give to clients to learn.

Biggest drop in 22 months for the 10-year Treasury Note Index

This means that although at Tuesday’s Federal Open Market Committee meeting the Fed will likely maneuver for a more immediate opportunity for raising the Funds Rate, the reality is that the market does not see an opportunity for raising rates until at least Dec. 04 (post election).
10-yr Yield Note Yield Friday Dec 5th: 4.215; Opened the week at 4.34.
Declining dollar, drop in 10yr yield, and election cycle paints Fed into corner by reducing tool use options. Furthermore, a miraculous productivity increase of 8% eats a fair chunk of excess capacity restraining the Fed from raising rates.

Max, I touched upon this point in my very first post in this forum. I too felt the mood of the posters was euphoric over RE and not looking at the bond train barreling towards us. I’ve wrote this before and will continue to say that US bonds fate are in the hands of foreigners, namely Asian’s. They hold approx 37% of US treasuries. When the lose confidence in the US$, they will sell dollars and US treasuries. Sell off will spike interest rates. Bad for RE obviously but it will stem the outflow of US$ leaving and temporarily prop up the dollar.

P.S. My gold, silver and Cdn$ calls, US$ puts are performing wonderfully. I expect a brief rally in the US$ tomorrow but back to its continued debasement. Profits from this will purchase RE after rising rates and unemployment knock it down a couple notches.

Read a great quote that in 1929, John D. Rockefeller decided that it was time to sell shares when even a shoe – shine boy offered him a share tip. During the past week, the author of an article was advised by a taxi driver, a plumber and a hairdresser that “you cant go wrong” investing in housing-the more you own the better.
Is this scientific? No. But is sure is a great measure of the madness of crowds. The RE side of the ship is definitely tilted and taking on water. When the water cooler talk begins to focus on gold, silver, precious metals, bond bubbles, US$ puts and how they can’t sell their house without taking a loss, I’ll wait a bit until the froth builds, then step out the back door into RE. Not one person has mentioned the above. In conversation people tell me what they are invested in and it does not include the above. Good sign that its still early.
Must remember. If you have a security that is not performing, in most cases it is extremely liquid. Call, log on and sell. Bingo. RE is very illiquid and most of Americans net worth is concentrated in this illiquid sector. Wait and see. I hope many of you are still around when this begins to occur and we’ll discuss in more graphic detail.

New year, new look, same great topic: Bonds!

Last week' s new issue coverage again below 2. The Bank of Japan bought over another 20Billion Yen worth. Wtih all yields currently under 5%, how long can BOJ keep buying US Treasuries, while the dollar still plummets? Should the BOJ throw in the towel, would European Central Banks step up to the plate to stem a bloated euro value? If not the European CBs, than who? Should a technical bounce in the USD at 80 stem the tide? How do Bonds affect YOUR life? They most assuredly do.

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Financing Reality through Precious Metals and Mining.

Interest rates that the banks pay are affected by supply and demand, less Keynsian intervention.

Supply and demand for money.
Money supply is measured, in the US, as M1, M2, and M3. (Actions of the M3 has been very interesting as of late; perhaps forecasting fall of yield rates below 5%?).
On the supply side, there has been too much supply of the USDollar (USD). The only entity publicly voicing a demand is the Band of Japan (BOJ). Recent comments by the European Central Bank (ECB) head – see recent stories at Forex for example, suggest that the ECB may start buying USD to support the Euro. That is, the ECB does not want the euro to strengthen anymore, for mostly the same reasons that neither the BOJ nor the US, nor practically anybody else, want their currencies to strengthen. Currently, it is a race to the bottom for fiat devaluation.

Some countries can be characterized as having taken an intriguingly shrewd move by tying their currency to the USD (see Renminbi etc.). So, they do not need to set a central bank fiscal policy (for that matter, why should a government have a fiscal policy?) to buy the USD (via the offereing of US Treasuries).

On the demand side, what little demand there is for short-term and low-interest paying securities (Certificate of Deposits, Money Markets) is offset somewhat by a public reluctant to put more monies into equity markets that have 1) Entered a secular bear [although the US equity markets made 2003 gains of approximately 25%, this amount was entirely offset by depreciation of the USD, for a net negative loss (less CPI and opportunity costs) for the fourth year running] and 2) been shaken by increasing string of mis-management stories in corporations and mutual funds.

Furthermore, on the supply side – short term interest rates in the US are affected by both the Federal Funds rate set every quarter by the Federal Open Market Committee (US Federal Reserve) and the long term bond rates. The long term bond rates are a more accurate indicator of market forces, since the Fed Funds rate has less impact on long rates vs. short rates.

Long term rates and short term rates can move independently. Long term and short term interest rates should be different; after all – you want more interest paid for a longer commitment, right? The flattening of the yield curve is a sign of troubled bond markets, with approaches toward backwardation especially troubling (where short term rates are larger than long term rates).

Bond yields fall when bond price rises. Price rises when buyers believe that future issues will have lower coupon rates, thus making previous issues with higher rates a more attractive offering. Rising prices lower yields. Falling yields suggest that longer term rates will continue to remain steady or even fall as bond buyers grab at shorter term securities, perhaps with the belief that the Fed is not able to raise fund rates – politically - until after the US elections in Nov. nor fiscally – because of a weak US economic picture, despite some glamorous predictions to the contrary and humorous suggestions of current ‘re-inflation’, supposedly evidenced by ‘increasing’ equity and housing prices (values) against the telling performance of the M3. Yes, Fed fund rates can maintain at 45 year lows for a long time, or drag even lower. See the story of Japan

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Financing Reality through Precious Metals and Mining.