By John Reizner |
Shortly I hope to post charts on this website; but in the meantime please allow me to convey my view that interest rates may be headed lower and may stay low longer than most think – contrary to the opinion of many on Wall Street.
Fundamentally, the velocity of money is still in the tank. Without more money circulating throughout the economy, it may be hard to conceive of inflation rising dramatically – though that has the potential to change in the future. Right now, I think deflationary forces remain with us as the deleveraging continues from the debt build up in households before and during the financial crisis. To date, many observers may agree that tens of millions of households are nowhere near “escape velocity.” Lingering economic weakness appears to be one reason why rates are heading lower.
Technically, on a one year daily time frame the Ten Year Treasury Index (TNX) is near support (which may create a bounce in TNX and rates) at the foot of a regression trend channel that is a year in length. This level on TNX equals $21.22. However the ADX line, the measure of the strength and accelerating nature of a trend – is just under 25. A value above 25 may indicate that the downward trend on this time frame may continue downward and the ten year interest rate lower on an intermediate time basis.
Importantly on the monthly chart, the MACD histogram (MACD is a trend and momentum indicator) has moved below the zero line though the MACD signal line is slightly above the former. The position of the signal line relative to zero demarcates the primary trend which is still up for interest rates according to this study.
Should the MACD signal line move below zero on the monthly chart, the primary long term trend of interest rates would confirm down as defined by that important study.
The mantra on Wall Street has been for a long time calling for rising interest rates and inflation. I am just suggesting that rates may stay lower longer than many think. If the economy weakens at some point, then the downward trend may accelerate. One important caveat is that should the Federal Reserve lose control over interest rates which conceivably could happen after their bond buying is completed this month, then all bets may be off the table. Also, some are suggesting that if some Europeans stop buying our bonds in order to gain higher yields than they receive in their home countries, rates may rise.