On The Move Update

In late November 2012 we penned a piece entitled, “On the move to higher rates,” which commented on US interest rates including the likelihood that the 30-year treasury yield had hit a 35-year low in July 2012, at 2.45%. Furthermore, we highlighted that “post 2007 financial crisis, yields have plummeted as investors flocked to the perceived “safe haven” of sovereign debt. (Lending to the Government as governments never default??) Pointing out that volatility (a la the MOVE Index) had collapsed, falling to a 5 year low and an all time low.

This was then:

weekly_blog_130508_01

With volatility as follows:

weekly_blog_130508_02

Fast forward to now and we can see:

weekly_blog_130508_03

  • The June 2012 yield low has held, since when it has seen a high of 3.25%, before taking a breather.
  • The CCI Index, a basket of commodity prices, has been placed above the 30-year treasury yield, to dispel the myth that higher prices are bad for inflation and therefore likely to lead to higher interest rates. There is no evidence of this over the 35-year period.

Furthermore, as the price of the 30-year treasury has fallen, the inverse of the yield, volatility (MOVE) has continued to fall. In fact it’s now at a new all time low.

weekly_blog_130508_04

In November we concluded that, “when volatility of any security hits an all time low, the odds increase substantially that it is about to pick up and likely pick up with a vengeance.”

We stand by that conclusion.

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One response to this post.

  1. […] interest rates, in late 2012, just after 30-year yields hit a 200-year low of 2.44%, and in early May 2013, as it spiked higher from 2.8% towards 4% pa, accompanied by a surge in yields of all stripes […]

    Reply

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