Interest Rates And The Government Bond Market Are One And The Same

Posted at 4:56 PM (CST) by & filed under General Editorial.

My Dear Friends,

This little email may be the singular most important market relationship you need to understand as we make our way through market being manipulated everywhere by special interests both government and private in unison either by plan or planned accident.

Interest rates and the government bond market are one and the same.

You cannot predict higher interest rates if you also predict QE to infinity. QE is the non economic purchase of government and other debt securities. Therefore as long as QE expands to meet the size of bond offering, the bond market will stay bullish and interest rates will not rise significantly.

If you adhere to the prediction of higher interest rates then you are saying QE will cease or contract significantly. As long as QE is increased, as it just has been, bond bears will continue to get crushed.

You cannot separate predictions on interest rates from predictions on the conditions of the US Treasury market. Interest rates and the government bond market are one and the same.

Sincerely,

Jim

Jim,

Probably pushing my luck, but when the bond market breaks, what do you think will happen to general equities?

CIGA Russell

Russel,

I believe that every effort known to man to keep the bond market a raging bull will be undertaken. As long as QE is practiced, which is non economic bond buying, the bond market cannot break. The mechanism of preventing a bond market break is positive to equities.

Jim