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Sentiment Finally Turning Against Treasury Bonds.

 January 17, 2013 11:03 AM

It's no secret that we've been on a sell signal for U.S. Treasury bonds since August 16 based on their overbought condition, technical analysis, and indicator signals.

But sentiment for bonds has remained positive based on ‘big-picture' analysis ranging from "No way can bonds decline in price (yields rise) as long as the Fed is buying such massive amounts with its QE programs to make sure yields and interest rates remain low." to the naïve "Everyone knows bonds are a safe haven in times of trouble and uncertainty."

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But with 30-year bonds down 6.4%, and 20-year bonds down 10.7% since their late July highs, sentiment is becoming less confident.

From CNBC online this morning: "Adding to a rising chorus of analysts warning of a potential bond market crash in 2013 is David Roche, president of Independent Strategy, who says safe-haven government debt is now the most dangerous asset to own, referring to German Bunds, U.K. Gilts, and U.S. Treasuries. . . . . Worries about an impending bust in the world's largest sovereign bond market – the U.S. – have risen following the release of the Federal Reserve's latest minutes on January 4, which hinted that the beginning of the end is in sight for the central bank's ultra-loose monetary policy."

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Of course someone has been selling bonds at a quite heavy pace since August, even as the Fed increased its buying. We expect that to continue.

And if economic reports continue to handily beat forecasts, particularly in the Fed's two areas of most concern, employment and housing, as they have been in recent weeks, it could indeed be that the Fed will ease back on its bond-buying sooner than anyone expects.

We're still on a sell signal for Treasury bonds with subscribers in downside positioning in an ‘inverse' etf against bonds.

Yesterday in the U.S. Market.

A mixed, quiet day on light volume of 0.6 billion shares traded on the NYSE. The Dow traded again in a very narrow range of only 66 points from its intraday low to its intraday high.

The Dow closed down 23 points, or 0.2%. The S&P 500 closed up 0.1%. The NYSE Composite closed down 0.3%. The Nasdaq closed up 0.2%. The Nasdaq 100 closed up 0.4%. The Russell 2000 closed down 0.3%. The DJ Transportation Avg. closed up 0.1%. The DJ Utilities Avg closed down 0.4%.

Gold closed down $4 an ounce at $1,679.

Oil closed up $.90 a barrel at $94.18.

The U.S. dollar etf UUP closed up 0.1%.

The U.S. Treasury bond etf TLT closed up 0.2%.

Yesterday in European Markets.

European markets were also mixed yesterday. The Europe Dow closed down 0.5%. Among individual countries, the London FTSE closed down 0.2%. The German DAX closed up 0.2%. France's CAC closed up 0.3%. Greece closed up 0.2%. Ireland closed up 0.3%. Italy closed down 0.7%. Spain closed down 0.2%. Russia closed up 0.1%.

Asian Markets closed down Tuesday night but mixed last night.

The Asia Dow closed down 0.6% Tuesday night, and up 0.1% last night.

Among individual markets last night:

Australia closed up 0.3%. China closed down 1.1%. Hong Kong closed down 0.1%. India closed up 0.7%. Indonesia closed down 0.3%. Japan closed up 0.3%. Malaysia closed down 0.1%. New Zealand closed up 0.7%. South Korea closed down 0.2%. Singapore closed down 0.4%. Taiwan closed down 1.1%. Thailand closed up 0.3%.

Markets This Morning:

European markets are up quite strongly this morning. The Europe Dow is up 0.8%. The London FTSE is up 0.4%. The German DAX is up 0.8%. France's CAC is up 1.2%. Spain is up 0.9%. Greece is up 0.2%. Italy is up 1.3%. Russia up 0.1%.

Oil is up $.61 a barrel at $94.79

Gold is down $9 an ounce at $1,670.

This Morning in the U.S. Market:

This week is a quite heavy week for potential market-moving economic reports, including New Housing Starts, Retail Sales, Consumer Price Index, Fed's Beige Book, etc. To see the full list click here, and look at the left side of the page it takes you to. And the 4th quarter earnings reporting season moves into high gear.

There were no reports Monday.

Tuesday's reports were that the Producer Price Index declined again in December, down 0.2%. The core rate, which excludes food and energy was up 0.1%. And Retail Sales were up 0.5% in December, more than double the consensus estimate for an increase of 0.2%. And U.S. Home Prices were up 0.3% in November, for a year-on-year gain of 7.4%, according to a report from CoreLogic. But the Empire State (NY) Fed's Mfg Index fell for the 6th straight month, declining to minus 7.8 in January from minus 7.3 in December.

Yesterday's reports were that the Housing Market Index showed home-builder confidence is unchanged in January from December's reading of 47, which was its highest level in six years. And the Consumer Price Index, measuring inflation at the consumer level, was flat in December, no increase or decrease from November. The core rate, which excludes food and energy, rose a scant 0.1%. And Industrial Production was up 0.3% in December, slightly better than the consensus forecast of 0.2%. And lastly, the Fed's monthly ‘Beige Book' report was released. It said the economy has expanded at a modest to moderate rate across the country into January, with consumer spending and business hiring held back by concerns over upcoming fiscal policy changes. 

This morning's reports are that new weekly unemployment claims plunged by 37,000 last week to 335,000. The four-week moving average, which smooths out the weekly volatility, fell by 6,750 to 359,250. It's thought that the big plunge in the weekly number was due to a seasonal adjustment anomaly that will re-adjust in coming weeks. And new Housing Starts jumped 12.1% in December to the highest level since June, 2008.

Still to come is the Phila Fed Mfg Index, which will be released at 10 a.m.

The reports have given a boost to the pre-open indicators, which had been basically flat.



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