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                                These are excerpts from recent newsletters outlining
                                some of my perspective in the Treasury Bond market
(excerpt from Oct. 7, 2005 newsletter)
Buy Treasury Bonds
VERY briefly, in spite of the Fed raising short rates for over a year now, and in spite of all the Oil/China generated inflation talk, and in spite of all the talk of Foreigners dumping our spite of anything you want to name, the Treasury Bond market has been rock solid.....As I have said for some years now, even though the economic analytic community keeps talking about long term rates going higher, in the real world, nobody is really selling US Government Securities that still have 15, 20, or 25 years to maturity and are paying 5, 6 or 7 percent rates, guaranteed by the United States Government. Furthermore, as the Baby Boomers of the industrialized world approach retirement, this certainly means there is more and more of an ongoing interest in owning a 10 or 20 year paper investment that is the ultimate in safety and currently yielding 4.5%, ....Everybody keeps wondering why long term rates won't seem to go up....I think the answer can be summarized as: No Real Sellers vs. A Steady Influx of Buyers. This is not the recipe for a bear market.
As I also pointed out in my August 24th newsletter, Treasuries have an historical tendency to be quite firm between September and year's end. It is my guess that the demand for borrowed money lessens at this time of year and the price of borrowed money (interest rates) therefore tends to fall, and bond prices rise. This is an over-simplification and may have nothing to do with how bonds trade, but if you return to that August 24th newsletter, you can see the evidence for yourself.
As I have pointed out many times over the years, I consider Treasury Bonds to be THE contrary opinion market....that when a bull move is taking place, all you will hear is, "It's going down!!!!", and vice versa when they are going down....Think about it....If you had to name the one idea that today would seemingly be the most insane trade you could think of, wouldn't it be, "Buy Bonds. Long term rates are going LOWER"?....I assure you I am not taking this position just because of opinion, but it is a part of the equation....One of the toughest things about trading futures is, to be successful, when it's time to buy something "nobody else wants", on the surface it just doesn't seem to make any sense at all. Those adages about buying something "when nobody wants it" are easy to talk about, but more often than not, VERY difficult to actually follow through with....And in the interest rate market, which is always all over the media, it is even more difficult to do.
(Excerpt from October 14, 2005 newsletter)
INFLATION (!) talk was all over the media this week, with the implication being Bonds could only be going down, as long term rates go up. We ARE trading the futures market, not the past, and in my opinion, we have seen the worst in inflation. Yes, there may be some few more months of higher inflation numbers (or maybe not) but if so, with everybody hopped up on the subject, those numbers have surely been accounted for by the markets. Yes, Oil has generated some inflationary pressures, but I do not believe we have entered an era where inflation is systemic. In other words, we have not reached the point where the general public is in any way thinking, "I need to buy this now. It will only cost me more later.", nor, more importantly, do you have employees demanding higher wages to keep up with the increased cost of living... On the contrary, they are just more concerned with holding on to their jobs....Yes, I am paying more for energy, but a trip to the grocery store, the movies, the mall or the big box stores still seems to cost the same....And with all the talk about the Fed continuing to raise short term rates, one should not forget they have been doing so for some sixteen months now, and in general, the Bond market has responded positively to that tightening...
I think Treasury Bonds are going up because the world still has a tremendous appetite for long term paper guaranteed by the United States Treasury...And I still say no one is really interesting in selling any of that paper they already own.
(Excerpt from Nov. 8, 2005 newsletter)


I believe:
The bull market in energy has ended and with it any whiff of inflation we have seen in the last year has peaked out. Maybe not that soon, but I think we'll see $35 oil before we see $70 again. Even with the inflation numbers seen this year (which is bearish for Bonds), the Bond market is still exactly where it was when the year began. This indicates there are other factors besides inflation at work in the interest rate market.
Even with the Fed having raised short term rates at every meeting they've had, Bonds are still exactly where they started the year. This has befuddled a lot of people, including the Fed. Same as with inflation, this firmness in the Bond market is a sign of underlying strength.
The construction and automobile industries are the backbone of our economy, both of them combined being directly related to creating more jobs in this country than anything else there is. 
The housing market IS slowing, and if the housing stocks, which have been generally falling dramatically (20% to 40%) since August, are any indication of what's coming in the industry, the news going forward won't be good. It had to come sooner or later, when those gazillions of new houses we've all seen popping up everywhere start to sit without buyers and the "For Sale" signs start multiplying, and with the slow down, construction industry jobs start disappearing....As for the automobile business, all you need to know is that GM and Ford are both in such sorry shape they are dealing with bankruptcy rumors....Bottom line? If these two industries are in trouble, all of those ideas about rates going up, up, up (!) are going out, out, out the window...
I keep saying it....There is a lot of talk about long term rates going higher, but for that to happen, you've got to have willing sellers...and it is my very strong opinion that there simply aren't "any"...Bonds are instruments that pay interest for a long, long time and investors who already own Bonds are most likely just not interested in selling them...As an example, if in November, 1990, you had bought a 30 Year US Treasury Bond, you would own an instrument that has been paying you 8.35% interest for the past 15 years and still will pay you 8.35% for another 15 years...Would you sell it? I doubt it....and neither would anyone else....As I've said all year, I believe there are no natural sellers in our Treasury market, just the usual backwards thinking interest rate analysts who keep yelling "Sell!", and speculators who keep trying to do so.....
On the buy side, aside from the fact United States government paper is still considered the safest long term instrument on the planet, and will CONTINUE to attract foreign buyers at EVERY auction we have, there are the Bond Positive Demographics of the Baby Boom. As all of the Boomers approach and enter retirement, secure interest bearing instruments like US Treasury Bonds will become a larger and larger part of their savings and retirement accounts...As opposed to the 1990's when all the retirement account money was being thrown at stocks, as we go forward, more and more of those funds will now find their way into Bonds...the point being, this will represent a steady influx of buyers to the Bond market.
To simplify then: No natural sellers + steady influx of buyers = higher bond prices (and lower long term rates).
If I know anything at all about this market, I can tell you they generally will turn up BEFORE the Fed finishes its tightening campaign. I can also almost promise you they will turn up when absolutely everybody is CERTAIN they are going lower. I think we are "right there" in both cases.
Bill Rhyne
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