Monday, January 5, 2009

The Bond Bubble

The last several months the bond market has been ripping higher and yields are collapsing (bond prices and yields move inversely). Yes and with all these fear struck investors looking for a "safe investment" they are piling into US treasuries. Thus forming a bubble. *Gasp* And yes like every bubble ever created, this one in the bond market will pop and money will flow into something else.

As you can see from the chart, bond futures are literally going straight up lately. Last week saw the first consecutive day pullback of this size since late October. I dont think the bonds have topped just yet. You are likely to see at least one more leg higher that may or may not make NEW highs of the 142 ish area.

It does look like this bubble will pop in the near future and when that happens you will see a outflow of money here and where will it go?

I think it goes into the gold market. At the same time it looks like gold is poised for a breakout over the 900 level. Gold has been consolidating for the better part of a year now after hitting all time highs around 1000. I will follow up with a look at the gold chart.

Sean Hyman from MyWealth has an equally interesting take on this bond bubble/gold trade.

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