The Scary Treasury Bond Sell Signal Comes Closer

It was just on July 24, 2012 that the 10-Year Treasury Note hit a low yield of 1.39%.  That was 1.60% on August 7, and today its yield is close to 1.85%.  That means that investors were getting more than 40 basis less than those lending Uncle Sam today.

And the 30-year Treasury Bond is another example. The 30-year Treasury yield bottomed out 2.45% at July 25. That was 2.72% by August 7, and now yields are close to 2.96%.  That is a swing of 50 basis points and investors less than a month ago are getting hosed at this point.

The ProShares UltraShort 20+ Year Treasury (NYSEMKT: TBT) bottomed out at $14.08 on July 25 and that is now above $16.50.  While there is leverage there, this shows just how profitable the bet against Treasury bonds has been.

The FOMC has maintained that exceptionally low interest rates are a thing that should just become expected until at least late in 2014.  Maybe it is not time to worry about the fiscal cliff today, but long-term rates have risen because the economic weakness did not continue getting worse.

If rates rise much more in the very near-term, investors better start to watch out for those dividend bubbles we have been warning of for a few weeks. Maybe this is not an immediate Sell-signal, but what happens if these bond investors are suddenly down 10% of their face value in bonds because they were too scared to go into stocks?

JON C. OGG