The long bond or 30 Year yield has been in a bear market since the early 80s. However its rate of change has become more gradual (its slope has flattened). Since the 90s, there has been a great deal of inertia for yields to fall down towards its return line. If the brief deflationary period of 2008 were omitted, this would resemble a giant bullish falling wedge. As bonds with longer duration are more sensitive to changes in interest rates, this suggests that the road ahead leads to much higher rates.
The 10 year has been the most widely followed as it tracks the mortgage market. In recent times the activities of the US Fed (Treasury Permanent Open Market Operations to purchase the shorter duration US Treasuries) has distorted shorter end of the yield curve.
The effects of which are also seen in the 5 Year chart, with current yields not seen in the last 48 years.
The distortion is more pronounced in the 13 week Treasury bill as the Fed valiantly tries to keep rates low for an extended period of time to support the fragile US economy.
Research in the late 1980s on the yield curve has found it a reliable predictor of future real economic activity. The following chart shows this movement.
In June 2007, just before the financial crisis, the flat yield curve (chart shows UK Gilts & US Treasuries) gave an advance warning. Today, the normal yield curve may not represent the underlying reality of the economy with distortion from quantitative easing activities of central banks.
The next big trade will be to short US Treasuries once the long bond yields assuredly moves above 4.6% (currently 4.38%).
Looking back I can see why Bond King Bill Gross and PIMCO is short US Treasuries. (He was, however early) Jim Rogers also recently came out to say he may be joining in the short camp soon. (I found Jim Rogers to be unassumingly a good market timer, although he publicly said he was bad at it)
