Thursday, 11 June 2009

US Fed has to confront a more hostile monetary environment

The Treasury market will probably have another nervous session today (June 11) as an auction of 30 year bonds has to contend with a lackluster reception for ten year notes in yesterday's auction. As can be seen from the very long term chart shown above (click to enlarge) the 30 year yield spiked up to almost five percent yesterday.

If the yields required to sell all of the long maturity debt do not find some support in the five percent region there would be a plausible case to be made that a confirmed violation of the downtrend through yields stretching all the way back to 1987 creates a hostile monetary environment for the Fed which will "complicate" the rebuilding of confidence in US equities as a desirable asset class.

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