Mike Shedlock

People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time.

Here is a chart going back 20 years from Steen Jakobsen at Saxo bank in Denmark.

Click on Any Chart in this Post for Sharper Image

$TYX 30-Year Long Bond

Operation Print-Money-Like-a-Madman

Via email, Steen writes

I think higher interest rates are for real, and not a fluke.

The move down in US yields below its long-term channel was an unusual move - as can be seen in the above chart - 30 year US has been in solid down-ward slopping channel since 1980s. There have now been two breaks to the down-side: One in 2009 when the stock market crashed to 666 in the S&P - and now since 2011, when Fed initiated Operation Print-Money-Like-a-Madman with QE, QEII and Operation Twist plus “low rates forever”.

These moves were the exception not the norm, a function of the “unconventional measures” all the central banks has been pointing to forever.

We are entering an extremely dangerous period. Valuations are stretched, even my internal bull, Peter Garnry is getting conservative. The divergence is bigger and bigger – actually to me this is beginning (on charts) to look at lot like end of 2007 into 2008.

Let’s hope I am wrong, again, and this is merely a pause before the world is saved and we can all believe that more debts creates growth and reforms.

Bubble of Modern Banking

I happen to agree with Steen in his implied suggestion the world is not saved, but that is not the same as a treasury bubble (and Steen did not use that word).

However, James Grant, publisher of Grant's Interest Rate Observer is willing to state flat out that treasuries are a "Bubble of Modern Banking, a Desert of Value".

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.

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