I don’t want to get into a big fundamental debate on this blog. There are hundreds of those in the ether of the internet, television, and the print media. I just want to look at some data that is dependent on the current rate of inflation (deflation). Historically, the US Treasury Price/Yield has a high correlation to current and future inflation rates.
The 10 year Treasury is now yielding 3.97%. In the 1980s it yielded over 10%.
Chart courtesy of Stockcharts.com
Price (in this case yield which is inverse to price) has not even come close to the 50% retrace of the move from 1990 to 2003. Yield was moving nicely along the 1:1 Gann angle but fell off the cliff in 2007. It is possible that a sharp move up will put it back on course to the 50/50 point in a few years at a yield of around 6%.
The first significant resistance is at the 1:1 parallel angle from the 5.26 high. If yield breaks through that line then I will change my guess that we are in more of a deflationary environment than an inflationary one.
Tags: Bonds · Gann Angle Fan · Square of Range2 Comments
2 responses so far ↓
The low rates are how the money supply is expanded in the first place. You should expect the higher rates later on.
Mick - Yeah, that is the theory… but I don’t see it in any data yet.