And here’s where it gets amusing to me. I have suggested before my skepticism of relying on the charts to guide investment decisions. If the fundamentals are well-understood, certainly technicals can help with the timing of entry into a position. Still, what sometimes can happen is that an exogenous shock helps to trigger price action that seems entirely consistent with what the chart was telling you anyway. In this instance, we have the depositor levy in Cyprus – an event that, not surprisingly, drove people back into treasuries for the time being – coinciding with a resistance level. It’s uncanny.
As to the longer term implications, I will draw from Kyle Bass’ recent speech at the University of Chicago. In imagining an eventual crisis in Japan, he thinks people will flock to Treasuries and German bonds for safety, as a type of Pavlovian response, driving those rates negative. That’s probably what we see happening now in a less dramatic fashion. So, the next few weeks will be interesting, and telling, with regards to whether a real change in trend has occurred with interest rates in the U.S.
