That’s because the chase for yield has reached a tipping point that will leave some investors exposed to massive losses. Goldberg explains:
Our objective decision support engine is warning that the red oval of the past few months is absolutely not the price to be exposed to Treasury bonds. Since they are perceived to be the “safest” bonds on the planet, the riskier bonds we described above are even less ideal investments now. If you look at the lower pane in this graph, the stochastics indicator is showing a bearish divergence, meaning extremes in price are not confirmed by momentum, strength, or volume.
This is illustrated into the 1998 peak, 2008 peak, and 2012 peak, and has just happened again into the 2016 peak. The largest decline that followed this condition, so far, was the 35% wipeout in 1999, while the smallest was the 2013 slide of 17%. We have shown what both a 17% decline, as well as a 35% wipeout, would mean in the next few years in the green ovals within the pink column at the right of the graph. If there is one thing we are highly confident of, it’s that few investors, banks, hedge funds and governments are prepared for a bond collapse that looks anything like this.
Goldberg predicts that interest rates will soon begin spiking out of the Fed’s control, which will set off a massive sell-off in under-yielding assets that have reached bubble levels:
Eventually, the Fed will follow the long-term yields higher by raising the only rate it directly controls short-term rates. What is going to drive yields higher is demand for capital, at nearly any interest rate, by those in fear of financial collapse due to weakness in their modeling of how their businesses, municipalities, pension deficits and other revenue streams are in comparison to their euphoric assumptions.
The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) rose $0.54 (+0.39%) to $137.55 per share in Monday morning trading. Year-to-date, the largest fund that tracks long-term Treasury prices has gained 14.03%.