What I really can't figure out is why long term treasury yields appear so comfortable with inflation breaking out and gold skyrocketing higher.>
I think Treasuries are being price fixed, by FCBs and the Fed who are buying huge percentages of each auction. Up to now, the US Treasury has avoided really testing the longer dates, instead utilizing the short end. As long as price fixing occurs, then you will get the dealers and prop desks in there scalping basis points and renting these securities for tawdry wash, rinse, repeat trades. It's a tripartite (FCBs, Fed, Pig Men).
Occasionally the specs (the foils) get in there and make big bets on higher rates (plus there is a mortgage convexity trade overlaid on this), and when they do, you will notice that the Ministry of Truth operatus
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gets geared up and squeezes them, usually on the back of some weak economic number, that is then quickly forgotten (stock market rallies anyway). All that gives the appearance that the market is forseeing some kind of goldilocks disinflation and an economic nirvana whereby Joe Six just lives off of investments, his house, and the kindness (loans) of foreigners. The reality in my view is altogether different: inflation is raging, his "investments" are popping, and the foreigners are far less eager to oblige him.
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The rally we saw from 4.65% down to 4.40%, was caused by: 1. a sudden three week buying binge of $29 billion by FCBs, and $3.7 billion in monetization by the Fed. You will notice that gold (truth serum) rallied hard too because of this, see the connection now? 2. the specs/foils getting offside and heavily short the rate complex. 3. then the set up (yes, I think it's rigged and leaked between the Fed and Pig Men): minor word changes in the FOMC minutes combined with step 1.
This week the rate came back over 4.50% because: 1. the shorts were already squeezed hard and quickly (see COTS), little fuel left. 2. the Treasury had huge financing needs. 3. the FCBs backed off to $3.8 billion ($10 billion a week is simply unsustainable) purchases, and the Fed monetized nothing (maybe someone was on vacation?).
Fundamentally all these markets are getting to be Bubbles because of this. That's the problem with Soviet Union style intervention economics, everything is distorted. It's like the plant in Little Shop of Horrors, gets bigger and bigger, and has to be "fed" (pun intended) more and more, and with increasing difficulty. I'm terrified too, because the plant is already out of the store.
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