U.S. Dollar and Various Treasury Yields: Now Things Get Interesting

Includes: IEF, IEI, TLT, UUP
by: Gary Tanashian

What is the story here? 5, 10 and 30 year treasury yields are marching in lock step saying these bonds' would-be buyers want greater compensation if they are going to take on the debt of a society that literally lives by inflation, and by debt. The yields are rising as if to say "Look, we will keep the illusion intact as long as you are willing to manufacture more debt to sustain it, but we must be better compensated as the moral risks get higher here in Full Hubris '10".

The key yield to watch is of course the 3 month T-bill, which will tell the Fed what it is going to do (you don't really believe these clowns are in control of such things, as they pretend to make these decisions, do you?) and if the T-bill tells the Fed that rates are going to rise, then we will find out how sustainable the economic recovery is.

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As an aside, you may know that I have a position in the real world where my finger is on the pulse of the US manufacturing economy. The better than expected mid-west manufacturing activity is not a lie. There is recovery, and I see it elsewhere as well. I'll talk about my vantage point on the 'real' economy a bit more in NFTRH. 'THE' recovery is not in dispute and this is surely no perma-bear, perma-Armageddon blog.

But it is sustainability that is the question, and rising yields, if they are not stopped at our 'line in the sand' of secular change, will answer a lot of questions in that regard as we move forward. The dollar has predictably been rescued from the abyss that the MSM were trumpeting. Now there are actually strong dollar wise guys coming out of the woodwork. Now things get interesting.

Disclosure: No positions mentioned although I own t-bill and short term treasury funds SHV and SHY.