US Treasury Yields Up, Commodities Down

The Demand for US Treasuries is slowing, causing Bond prices to fall…

http://market-ticker.denninger.net/archives/1720-Oh,-You-Think-Youre-Gonna-Crank-Out-Bonds.html

And Interest Rates ($TYX) on US Treasuries to rise…


Which causes the US Dollar ($USD) to rise (because you want to own currencies that pay higher yields)…


Which kills the Dollar Carry Trade, and forces sales of Crude Oil ($WTIC) and Gold ($GOLD) …


The lower cost of Energy helps Airlines ($XAL) and Retail (XRT)


Here are the charts above on one chart, for easy viewing. Since approximately December 1st, you have had $TYX, $USD and $XAL up and $GOLD and $WTIC down.

And Stocks remain in a trading range, with The Bullish Percent ($BPNYA) and the Summation Index ($NYSI) well below their highs of September. So you have fewer names in uptrends, holding the markets up.

This can’t last. We either need to see a selloff, to clear the decks for another rally attempt, or we need to see new buyers show up and break the markets out of this trading range on big volume.


You have to ask yourself, if asset price appreciation and the Global Recovery is predicated on a falling US Dollar, and the Dollar is weak because of low Interest Rates on US Treasuries, then how far can a Dollar rally and a Commodity selloff really go?

A second theory is that everybody is short the US Dollar and when you get crises like Dubai and the Credit downgrade in Greece and the downgrade watch on the Credit of Spain, then people need to cover their shorts and you get a vicious rally in the US Dollar. Moreover, you get fear that countries in the Euro (Greece, Ireland, Spain) are going to leave, so that they can start printing their own money to deflate away their debt – putting pressure on the Euro and benefiting the US Dollar.

In my mind, that makes the Dollar rally Cyclical (Trade) and the Commodity rally Secular (Buy and Hold).