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Every day there is a massive amount of newsflow in the market. Some relevant, some not so relevant, the danger of this firehose of information is that we don't spend enough time looking at the few crucial things that do matter.

Therefore, I want to take a moment to point out what is going on with 10 year Treasuries where we are now pushing 120 year lows.

10 year treasury since 1890...

click to enlarge

10 year treasury past 10 years...

The Bull Case
Some see this as the logical continuation of the 30 bull market in 10 year Treasuries, and given Operation Twist and unprecedented easing it makes little sense to fight a Federal Reserve who has now mastered the art of inflation fighting, especially when growth is unlikely to stoke inflation any time soon and bonds over a much less risky proposition than equities, especially in the context of European weakness.

The Bear Case
The counter-point is that inflation is hard to predict, but the long term average for the US is 2.3% i.e. above the current 10 year yield of 2%. In addition, with high government debt to GDP ratios pretty much everywhere, slightly higher inflation (as a way to erode the real value of debt) is a potentially politically easier choice than raising taxes and cutting spending and politicians are not known for making tough choices.

I lean toward the latter camp, but I think it is important to take a moment to take a step back from the day-to-day routine of the markets to look at the big trends, and the current 10 year US bond price (whatever your view on it) is clearly one of them.

Source: Pay Attention To 10-Year Treasuries