US Yields of 30 year Bonds – technical outlook

The monthly chart of “30 year bonds” work the other way around compared to the price of Bonds. We are clearly in a falling trend still and, at some point within the next 6 months, we will even drop below 4% yields, as the chart shows. The current rate of FED funds will drop like in Japan to 0 at some point. Yes, you heard me right “zero”, since the crisis within the banks and economy is going to worsen as even the chart tells. But unlike Japan, we will not be in a deflationary trend medium or long-term, since the only defense the world financial system has to restore the damage will be to inflate it, since the damage (the losses I calculated for the mortgages sector are currently at $6 tril., so add another $2 tril. in CDS at least) is so big that it can not be repaid with hard currencies.

This $700 billion is a drop of water on a hot stone with $800 trillion of derivative contracts between weak banks, to say the least. Or, as Warren Buffett put it once, it’s the weapon of mass destruction. Well I do not say that to demoralize anyone but we need to face the truth.

So the FED will cut rates to 0 and bonds will drop in their rates for a bit, unless the burden gets so overwhelming that the next big bubble bursts and the Bond markets will crash in value (in this chart they would rise steeply). That will occur when people recognize that after round 3 or 4 of $700 bil. packages there is no end to the bleeding. One day Bernake (but I doubt he will still be in office) will have to drop money from helicopters as he once said he would if he needed too. The moment when yields hit the lows is the time to buy GOLD, even a bit earlier since we will switch into hyperinflation mode.

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~ by behindthematrix on October 18, 2008.

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