Interest Rates

July 13, 2009 - The countertrend rally in the price of long-term government paper is probably over. The reality of too much federal government debt that needs to be borrowed is about to overwhelm the debt markets and send yields higher. The 30-year T-bond is already showing signs of weakness. It is only a matter of time before the 10-year T-note follows the same path. Both have retraced approximately one-half their decline in price.

So I recommend that traders sell short the Sep’09 T-note at the market (today’s closing price for record keeping). Stop out this trade if this contract closes more than 1-00 point above your short sale price.

My comments remain unchanged from recent letters. With each passing day, December’s top in prices (i.e., low in yields) looks more and more certain.

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