Bond Market Suffering Indigestion
By Jim Welsh | August 28, 2008 | 2:11 PM | 0 Comments
Last month, I wrote, "Although the economy is going to remain weak, and the Federal Reserve is not likely to raise rates, the problem facing the Treasury bond market is supply. The budget deficit is going to rise, as the economy generates less tax revenue and spending increases." The fiscal deficit for the budget year beginning October 1, 2008 is likely to be $550 - $600 billion. That's a lot of money and supply for the bond market to absorb, even if the economy remains weak. I think the 10-year Treasury bond could fluctuate between 3.65% and 5.5% for many years. In April, I suggested buying the 10-year Treasury bond when the yields exceeded 4.1%. In June, I suggested to sell half when the yield tipped
below 3.8%, which it did on July 10 and July 15. Last month, I suggested selling the other half on any 10 basis point reversal higher, which was triggered at 4.02% on August 6.
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