U.S. Treasury Rout Continues, Commodity Prices Accelerate

The rout in U.S. Treasuries is becoming biblical.  30 Year Bond futures dropped 1.5 points, crashing through horizontal support at 147 and 146.5 to close Wednesday afternoon’s trading at 146.01.  The yield climbed to 2.91%.  10 Year Treasury yields rose to 1.80%, up 0.071%.  This sell-off in Treasuries is particularly worrisome because there has not been a commensurate rise in equities.  The S&P 500 (AMEX:SPY) rose just 1.60 to close at 1405.53 (0.11%).  If the money is rotating out of U.S. Bonds and Securities and not flowing into U.S. equities, where is it going?

Brent Crude (AMEX:BNO) rose to $114.52 after Wednesday’s U.S. trading, up more than $2.00 per barrel over yesterday.  This pushed gasoline futures away from $3.00 per gallon for the front month contract, closing up $0.0743 to $3.07 per gallon.  Japanese bonds were sold as well with the 10 year yield pushing up through resistance to 0.84%, a huge gain of 0.04% on the day.  Corporate bonds have been taking a beating, but a lighter one.  I like to look at the iShares IBoxx $ Invest Grade Bond fund (AMEX:LQD) at an indicator of the health of the corporate paper sector.  It was off mildly today, 0.47%, to $118.56 and a 4.07% yield on very light volume.

We didn’t see much movement in the metals either, Gold (AMEX:GLD) was up slightly to $1603 per ounce.   With two weeks to go to August expiration the Gold market is still very tight through the October contract with Gold moving into and out of backwardation indicating very strong physical demand.  This pressure will increase as the month continues and we move towards September delivery.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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