We're in a debt deflationary depression and the Fed is buying unlimited and there's nowhere else in the world to get real yield. And you want to be short the long bond? Good luck man.
SkylinePro
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@ajwaldo1, you are correct about deflationary depression. In a scenario like this banks are afraid to lend at current rates and this is shown in the increase in spreads. People and companies are also afraid to borrow as scenario point to deflation. Therefore, the FED can buy unlimited that it will not stop rates from increasing. This is because FED follows the market and not the contrary (see below). This happens because if banks don't want to lend at low rates and increase them, the FED has no way other than increase rates and follow as it happens all the times in history. The market rules and FED follows.
@SkylinePro, the entire world is going into USD to get whatever real yield left that they can. Treasuries are the safest play in the world and people will pay absolutely anything they can to get any real yield from the US since there's literally no alternative. With CPI headed to -3% or lower, a 0% 30 yr will represent a 3% real yield, which is crazy good compared to all else. The entire curve is going a lot lower, and probably negative. I wouldn't be surprised to see a negative 30 yr within a year. People made the same mistake you're making with JGBs over the last 30 years. Debt jubilee is years off.
Some clarifications:
"banks are afraid to lend at current rates and this is shown in the increase in spreads". Yes, they're afraid to lend to corporates. Ts have absolutely no risk of default whatsoever so the money instead goes all across the Ts curve. The market is telling you that there will be concurrent monetary inflation with consumer deflation. Two worlds, different inflation rates.
"people and companies are also afraid to borrow". Not true whatsoever. Companies are desperate to borrow. They are short USD and will do whatever they can to get them. This, however, is tangential to the point here.
"FED can buy unlimited and that will not stop rates from increasing". Fed has been buying considerably less than we expected so far and that still hasn't stopped the 30 yr yield from plunging. Wait until they actually start buying when the DXY gets too strong after the Euro falls apart.
"market rules and FED follows". This is half true. It's true that the market sets the long term yields when the Fed is not doing aggressive QE. When the Fed announces they intend to do unlimited QE, even without actually doing anything, it creates a certain psychology in markets that nothing can go wrong. That's why HYG recovered despite the Fed buying a single bond yet.
SkylinePro
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@ajwaldo1, simple answer: since the post yields already increased from 1.2 to 1.40, 17% increase. More to come. We are in market psychology, and in this field, mood rules, not fundamentals, not linear equations, markets are not mechanical cause-effect machines.