Note Prices Soar While Yields Plunge

Dec 6, 2008: 10:30 PM CST

File this under “In case you missed it.”  The 10-Year Treasury Note price has surged 12% in just over a month, as investors surge to the safety of treasuries.  Subsequently, yeilds in these safe investment vehicles has plunged dramatically.  Let’s look at the 10 year note price, and then see the 5-year note and 3-month bill yields.

10-Year T-Note Prices:

Though I haven’t explicitly labeled it, it would seem the recent surge from $114 to $127 is a potential Elliott Wave 3 in perhaps a larger fractal Wave (Wave 1 being from $112 to $116 after a quick “ABC” corrective phase took place).

I don’t want to get too deep into the intricacies of analysis on these markets, but I did want to point out this sudden and perhaps significant development which is potentially going unnoticed by a vast number of traders.  Bloomberg has an excellent post on why this may be occurring which is worth a read.

The article begins as such:  “Yields on two-, 10- and 30-year securities fell to the lowest levels since the Treasury began regular sales of the debt.”

Not an encouraging report.

Analyst/Manager Jamie Jackson states, ““You’ve rallied to points that are unprecedented from T- bills to 30-year bonds…. That’s obviously pricing in a pretty dire economic environment.”

Portfolio Manager Richard Schlanger sums it up a little… less tactfully:  ““People are just flocking to Treasuries…. All you can say is, ‘My God.’ Things are going to get progressively worse.”

Let’s move on to see these falling yields on the 5-Year T-Note.

5-Year T-Note Yield:

Yields have fallen to 1.60% after breaking key support about the 2.40% level.  Take a look at a longer, monthly chart for more insight into the pervasive, multi-year downtrend in rates.

Finally, let’s see a shorter timeframe yield via the 3-month T-bills.

3-month T-Bill Yield (rate):

If I asked you to give me your money and I would hold it safe for 3-months and pay you virtually nothing for it, would you do it?  Yet fear and other complicated reasons is driving investors and institutions to take that deal because – for lack of a better explanation – they’re terrified that anywhere else they put it would lose money.  Thus, they’re willing to accept virtually no return on their capital for the exchange of complete safety.

Commodities are being crushed, the stock market is being crushed, foreign currencies are being crushed.  Gold is not holding up as the ‘store of value’ it is expected to be in uncertain times.  The US Dollar Index is surging, but mainly because foreign currencies are falling faster relative to the dollar – isn’t not necessarily a sign of US or the Dollar’s strength.

As everyone rushes into safety in US backed Treasury Bonds, Bills, and Notes, that drives prices higher and yields lower.  Unfortunately, it’s driven yields to all-time lows in some markets, meaning yes, you’ll probably be safe, but no you won’t get very much for it.

Study further into these developments and what they might mean going forward.

Corey Rosenbloom

Afraid to Trade.com

6 Comments

6 Responses to “Note Prices Soar While Yields Plunge”

  1. Mike Says:

    What is a good target point on entering the TBT or even right here with a tight stop?

  2. Corey Rosenbloom Says:

    Mike,

    I’m not a bond trader so I haven’t done much work with the TBT but my snap analysis is that we have a fairly significant hammer (bullish) candle after a long move down on a quick positive momentum divergence and surge in volume.

    A low-risk play would be to enter now (Mon), particularly if we start heading higher early and place your stop a little beneath the hammer’s low at $42.50. Maybe place the stop around $41.50 or $40.95 or so and play for a target – the falling 20 EMA – at around $50. That would allow you to play for possibly 5R or so.

  3. Bond trader Says:

    Corey, I have been trying to follow the 10yr price yield chart using elliot: things were going well, except the thrid wave’s fifth wave was very extended. Trying to look at smaller timeframes (240s and 60s) didnt gave more clarity. For now I think we are in the fourth, but time and time again, unclear counts tend to be more dangerous to follow. Any thoughts on the count’s clarity of the third wave?

  4. Bond trader Says:

    Re: the fifth of the third, it was way too long! Caused alot of pain on trading floors too!

  5. Andrew Stanton Says:

    I think I’ve seen that 10 year chart before. Actually it was late last year or earlier this year… in oil!

  6. Corey Rosenbloom Says:

    Andrew,

    So true! I went back and looked and almost did a separate post comparing the two structures – and I may yet do so – but you’re right – eerily similar.