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The Big Bond Sell-Off Is Just Getting Started

Saturday, November 19, 2016 5:41
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From Larry Edelson: Financial media outlets are telling you only part of the story driving the latest bond market selloff.

Sure, rising inflation expectations and prospects for stronger U.S. growth are bearish for bonds. But it’s the foreign liquidation of bonds that’s doing the heavy lifting. And my analysis says it’s going to get worse before it gets better …

Reason #1: Foreign governments were already selling Treasuries hand-over-fist ahead of the presidential election. This is highlighted by Treasury International Capital (TIC) data released this week that showed the liquidation trend firmly entrenched in September.

China, for example, holds a mind-boggling $1.157 trillion in U.S. Treasury securities (see chart below), the second largest holder on the planet. And they’ve been selling those Treasuries to fight against yuan devaluation. They have plenty of inventory left to sell as they contend with capital flight and a pullback in trade. So, this could only be the beginning.


Saudi Arabia is another heavy seller of U.S. Treasuries. I talked about their dire financial condition in a previous article. With those conditions likely to continue, you’re going to see more selling. In fact, they’ve liquidated nearly one-third of their Treasury holdings since the start of the year.

Reason #2: Growing budgets and need for more funding.

Currently, U.S. debt stands at a record $19.8 trillion. That’s trillion with a “T”. And it looks like that’s just the beginning: The Committee for a Responsible Federal Budget expects an additional $4.6 trillion over the next 10 years.

And where are they going to get all that money? You guessed it. More Treasury supply.

Reason #3: Nations are scared to death over a Trump regime – especially after all the campaign rhetoric about protectionist views was made loud and clear. Labeling China as a currency manipulator and repealing the TPP makes bond investors jittery and looking for alternatives.

Why is this important for you?

Simple. With everyone selling bonds, that money is looking for a place to land. And that home is the U.S. stock market.

The fact is many U.S. blue-chip stocks have stronger balance sheets than most national governments and are a safer place for your capital.

Result? U.S. stocks are likely headed higher in a big, big way.

In fact, my model work indicates the Dow will get to 30,000 before it’s all said and done.

For now, I am looking for a monthly close on the Dow Jones Index above 18,500 to validate the next leg higher.

But don’t just buy any stock willy-nilly. My members benefit from my key insights into which stocks to buy now … and which to avoid.

The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) closed at $120.85 per share on Friday, down $0.35 (-0.29%). The largest ETF tied to long-term Treasuries has now gained just 0.22% year-to-date.


This article is brought to you courtesy of Money and Markets.

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