US treasuries yields have been dropping while stocks are rallying? Something strange is happening here.
The 10 year yield closed under 3% and is pointing lower.
This suggests that there is money flowing into treasuries as it is seen as a safe haven. Investors are happy to take a smaller return to avoid the risk of being exposed to shares.
But why? The stock market looks to be trending up? This divergence is telling us that bad news is probably just around the corner.
The banks were given billions of $US last year and most of this money found it's way into equities. Now the banks need to convince the public that everything is AOK so they can offload their massive long positions before trouble hits again.
They will then take this money out of shares and park it in safe havens like high quality gov bonds while the public takes over the risk of being exposed to stocks.
Terrys Laundry's Sunday update was an interesting one.
As usual with him there is a fair bit of stuttering so please try to be patient wi wi wi with him.
Site - http://www.ttheory.com/blog_index.html
Audio - http://ttheory.typepad.com/files/tto20100801audio-a.mp3
Chart - http://ttheory.typepad.com/files/envelope-t-theory-20100730pdf.pdf
And his opinion on the inflation versus deflation debate
http://ttheory.typepad.com/files/tto20100801audio-b.mp3
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