US Treasuries point to deflationary times ahead

Hot air balloon deflating

If we take a look at the long term US 10-yr Treasury Chart we can see that ever since the rampant inflationary period of the early 1980s the 10-yr yields have been in a downward trend. Since hitting an all-time low of 1.4% in Aug 2012, yields have more than doubled, touching its long-term trendline and reaching a recent high of 2.9% in Aug 2013. We now expect the short-term trend to reverse and yields to continue lower to break below the low of 1.4% reached last year.

US 10yr 1962-2013

 

The 30-yr Treasury shows a similar trend, reaching a low of 2.5% in Aug 2012 before rising to 3.9% in Aug 2013. We expect yields to head towards 2.0% before bottoming.

US 30yr 1977-2013

Again, 5-yr Treasury shows a similar trend. Note that the weakness of the current economy is so great that after hitting a low of 0.6% last year the 5-yr has been unable to rally sufficiently enough to hit its long term trendline.

This divergence compared to the 10-yr and 30-yr suggests that the recent bounce seen over the last yr is a weak one, and should give way to lower yields over the coming months.

US 5yr 1962-2013