10-Yr Treasury Yield Has Gone Parabolic, Mortgage Rates and Oil To Rise
The market is pricing in much more than we originally anticipated in our original post that the 10-yr is starting to look toppy. The first three trading days after our post we saw exactly the action we expect, a major pull back, and then a bounce off of support. That pullback only served as a bull flag and now the action has turned parabolic, and we know how that ends... right?
This week, Treasury will auction over $127 billion; Wednesday and Thursday will be the 10-yr ($19b) and 30-year ($11b) Treasury auction, respectively. We can only hope that there is sufficient bid to cover of 2.30x or we may see a super-spike to the 4.325% levels. The mortgage rates when these levels were last upon us were 6.5% for 30-yr fixed rate mortgage with 2 discount points. It will be interesting to check various mortgage sites with real-time updates on mortgage rates as we see spikes in the 10-yr yield.
There has been much speculation on the Feds next move on their June 23-24 scheduled meeting. Will they buy more treasuries? Who knows. What we do know is that a rise in prices through commodity is a very strong possibility, even stronger with any more Quantitative Easing. The Fed's intention is to only bring down the 10-yr Treasury rate, as it is linked to many important consumer debt rates such as mortgages, credit-cards, etc. However, the Fed will welcome any hint in inflation and pricing power. Thus, I think the play for this pseud-inflationary environment will be more sustainable through commodities (both softs, and metals) and a fixed rate mortgage.
This graph shows several near-term resistance levels that we last went lower on during last summer's commodiflation rally, including a bullish cross in the 50-day and 200-day moving averages.
The Trade: If you currently own TBT or TMV, I would sell into this coming rally. If you're not in it, don't jump in as it will be very volatile and the Fed is probably coming to the rescue of the longs. It's much easier to own an ETF of commodities (DBE, GLD). If you're refinancing or want to, I'd highly suggest you get your paperwork done ASAP to lock in a rate if the Fed announces more QE.
Full Disclosure: Short SPY call spread (June 95-96), long contango-free Crude Oil ETF (USL), locked in a 4.75% rate for a refinance
This week, Treasury will auction over $127 billion; Wednesday and Thursday will be the 10-yr ($19b) and 30-year ($11b) Treasury auction, respectively. We can only hope that there is sufficient bid to cover of 2.30x or we may see a super-spike to the 4.325% levels. The mortgage rates when these levels were last upon us were 6.5% for 30-yr fixed rate mortgage with 2 discount points. It will be interesting to check various mortgage sites with real-time updates on mortgage rates as we see spikes in the 10-yr yield.
There has been much speculation on the Feds next move on their June 23-24 scheduled meeting. Will they buy more treasuries? Who knows. What we do know is that a rise in prices through commodity is a very strong possibility, even stronger with any more Quantitative Easing. The Fed's intention is to only bring down the 10-yr Treasury rate, as it is linked to many important consumer debt rates such as mortgages, credit-cards, etc. However, the Fed will welcome any hint in inflation and pricing power. Thus, I think the play for this pseud-inflationary environment will be more sustainable through commodities (both softs, and metals) and a fixed rate mortgage.
This graph shows several near-term resistance levels that we last went lower on during last summer's commodiflation rally, including a bullish cross in the 50-day and 200-day moving averages.
The Trade: If you currently own TBT or TMV, I would sell into this coming rally. If you're not in it, don't jump in as it will be very volatile and the Fed is probably coming to the rescue of the longs. It's much easier to own an ETF of commodities (DBE, GLD). If you're refinancing or want to, I'd highly suggest you get your paperwork done ASAP to lock in a rate if the Fed announces more QE.
Full Disclosure: Short SPY call spread (June 95-96), long contango-free Crude Oil ETF (USL), locked in a 4.75% rate for a refinance
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