By John Parry
NEW YORK (Reuters) - Treasury yields' recent push to five-year highs is the latest signal that a bear market in bonds may be dawning after a bull market that spanned nearly a quarter century.
The benchmark 10-year Treasury note's yield's climb of some 60 basis points in a month and move into a trading range between 5.25 percent and 5.50 percent already signals the market is in a downtrend. Still, most argue it has not yet entered a definitively bearish phase.
Nevertheless, a sustained break above the 5.5 percent level on benchmark U.S. Treasury note yields would almost certainly signal the dawn of a long-term bear market for bonds, according to Louise Yamada, founder of Louise Yamada Technical Research Advisors LLC.
Yamada, at this week's Reuters Investment Outlook Summit, said we are probably already in the early stages of a bear market and "but moving gradually into it."
A sustained move of the 10-year Treasury note yield above 5.5 percent would crimp consumers' and companies ability to borrow, further weakening the housing sector and damaging the economy as a whole, strategists said.
The Federal Reserve's campaign to cut interest rates to a four-decade low of 1 percent in 2003 pushed the 10-year yield to a cycle low of about 3.08 percent. In the 1980s, by comparison, long-dated Treasury yields peaked around 15 percent. Bond yields and prices move inversely to each other.
"Over the past 25 years, every backup in yields failed to exceed the previous backup," which was one of the technical hallmarks of the long-term bull market for bonds dating back to the peak in yields in the early 1980s, Yamada said.
Now, however, a composite view of yields on 10-, 20- and 30-year bonds is threatening to push through the 5.33 percent level, she said. "If this Treasury composite goes through 5.33 percent, you will have seen the first backup in rates that does exceed (the previous backup) in the past 26 years." Continued...
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