What does it look like when a 30 year bull market ends abruptly? What happens when bond yields start doing things that they haven’t done in 50 years? If your answer to those questions involves the word “slaughter”, you are probably on the right track. Right now, bonds are being absolutely slaughtered, and this is only just the beginning. Over the last several years, reckless bond buying by the Federal Reserve has forced yields down to absolutely ridiculous levels. For example, it simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is somewhere up around 8 to 10 percent. But when he originally announced the quantitative easing program, Federal Reserve Chairman Ben Bernanke said that he intended to force interest rates to go down, and lots of bond investors made a lot of money riding the bubble that Bernanke created. But now that Bernanke has indicated that the bond buying will be coming to an end, investors are going into panic mode and the bond bubble is starting to burst. One hedge fund executive told CNBC that the “feeling you are getting out there is that people are selling first and asking questions later”. And the yield on 10 year U.S. Treasuries just keeps going up. Today it closed at 2.59 percent, and many believe that it is going to go much higher unless the Fed intervenes. If the Fed does not intervene and allows the bubble that it has created to burst, we are going to see unprecedented carnage.
