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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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The Bond Liquidation is On

Big jumps in yields on U.S. Treasury bonds over the past week.

Check out the one-year Treasury. Yields are up 30% since November 8. To their highest level since early August.

US Treasury Yield Rates - 1 year

The rise in yields has been across the board. The 10-year Treasury is up 15%. The 30-year has jumped 8.5%, to its highest level since May.

US Treasury Yield Rates - 10 year

US Treasury Yield Rates - 30 year

Here's the really interesting thing. At the same time as regular Treasuries yields have been rising, yields on inflation-protected securities have also gone up.

Look at the 10-year inflation-protected. Up nearly 100% since November 4.

US Treasury Yield Rates - 10 year Real

Inflation-protected yields have also had an across-the-board rise. The 5-year is up 90%. The 30-year is up 25%.

What does this mean? Rising yields indicate falling prices. Investors are selling off Treasuries of all types.

Why? It could be the lack of confidence in the American dollar that many analysts have been forecasting since the U.S. began printing money to bail out the financial system and the economy. Perhaps the announcement of "QE2" two weeks ago was the last straw for some Treasuries buyers, who are now moving money out of dollar-denominated investments.

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Or it could be the opposite. Perhaps because of QE2, investors are predicting inflation ahead. Increased money supply is going to drive up prices of homes, stocks, commodities and other goods.

Investors who believe such would favor riskier investments over low-yielding Treasuries (even of the inflation-protected variety). Maybe this week's all-encompassing bond sell-off is a bet that QE2 is going to work.

By. Dave Forest of Notela Resources


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