On Monday, the Fed announced it’s buying everything. Sell it your Treasury Bonds. Sell it your mortgage debt. Sell it your corporate bonds. Heck… sell it your bond ETFs.

“We’ll buy it,” they said. 

Like Crazy Larry at Larry’s Used Cars says in his late-night commercials, “There’s no deal we won’t make.”

And, the bond market screamed higher on the news. After all, if the Fed is willing to buy whatever we have, then there’s no risk to the trade. We can buy the 10-year Treasury note, for example, at a yield of just 0.76%, and the Fed will take it off our hands when it’s time to sell.

It’s nice to have a guaranteed backer behind any trade you make – especially when that backer has the “full faith and credit” of the U.S. Treasury at its disposal. It’s as close to a risk-free trade as most common folks will ever see.

So, it’s curious that Treasury notes didn’t rally even stronger on the news.

Think about this…

Last week, the yield on the 10-year T-note dipped below 0.4%. That was before the Fed said, “We’ll buy everything.”

In other words, there were so many “natural” buyers the yield dipped all the way below 0.4%. 

Yesterday, with the “artificial” buying of the Fed, the yield couldn’t break 0.70%.

That tells us that even the Fed’s guaranteed buying pressure announced Monday couldn’t top the buying pressure of normal market forces last week. So, Treasury bond and note prices likely topped last week. Interest rates have likely bottomed. 

Two weeks ago, we argued the bond bubble was getting ready to pop. The action on Monday suggests it has indeed popped.

Long-term interest rates are headed higher from here. Bond prices are headed lower. So, if you ask me, traders will do well betting on the downside for bonds in the coming days.

Best regards and good trading,

Jeff Clark