Forecast For U.S. Treasury Bonds & Inflation Rate

March 17, 2014

Indubitably, the 2014 forecast for U.S. Treasury Bonds will prove to be controversial.

A looming bear market in U.S. Treasuries characterized by falling prices will inevitably galvanize the attention of conservative investors worldwide (ie Central Banks, the wealthy, Pension Plans and Insurance Trust Depts…and of course CHINA). Consequently, they will probably begin to reduce their holdings of the heretofore safe-haven investment vehicles. Thus, this will increase the downward pressure on bond values. 

MOREOVER,  the anticipated rise in bond interest rates will invariably increase the value of the US Dollar Index…as it did in late 1970s. In the period 1978-1979 T-Bond prices plummeted from 100 to 66 as interest rates soared from 7.6% to 12.2%. During the same period the US Dollar Index slowly strengthened from 82 to 95. Surprisingly, the value of gold during this period went ballistic (ie gold soared over 300% from $210 to $850 intra-day London)

U.S. T-Bonds have been in a record breaking 32-year Bull Market:

Here is a detailed list of the major foreign holders of U.S. Treasuries:


For years China has been the largest owner of U.S. T-Bonds, which today amounts to more than $1.3 TRILLION.   In fact a large portion of China’s Foreign Reverse are in Uncle Sam’s fiat paper, thus exposing the Sino nation for a dangerously high FOREX risk. Without any doubt Beijing has been having financial nightmares about the dire monetary consequences it will suffer when the 32-Year T-Bond bull dies. Because all bull markets eventually end. The chart below paints a poignantly sad picture of what awaits the Central Bank of China when U.S. T-Bonds eventually and inevitably fall below the 32-year trendline. It’s not a matter of IF…but WHEN.

The U.S. Treasury cartoon below will soon become reality…as interest rates spike upward.

Per market analyst Michael Noonon: “The amount of Treasury Bonds Russia and China hold  can be used to cause more dramatic harm to the US than the US could ever hope to damage Russian influence.  Case in point is the following chart from the Federal Reserve that shows how foreign-held bonds are being “cashed in.”

There was an increase to $104.5 billion in Treasury sales from foreign sources, [wonder who could be selling?], when the average weekly sales are $46.6 billion.  Someone is sending a very strong message to the US that undermines the fiat “dollar.”  In the larger scheme of things, this is a real shot across the bow, and more of this kind of action will be taking place in the future.”

Reasons why interest rates will rise fuelling inflation higher: Since 1968 U.S. inflation has run in tandem with the Interest Rate of the 10-Year Treasury. Therefore, when the US Interest Rates begin rising in 2014, we must expect this condition to boost inflation correspondingly.


Interest rates are very low, but they are likely to rise. An increase in interest rates could also bring on inflation today, compounding the inflationary effect of a potential debt crisis through a very similar mechanism.

Just how low are today's rates? The one-year rate is now 0.2%; the ten-year rate is about 2%, and the 30-year rate is only 4%. We have not seen rates this low in the post-war era. Furthermore, inflation is still running at around 2-3%, depending on exactly what measure of inflation we choose. If an investor lends money at 0.2% and inflation is 2%, he loses 1.8% of the value of his money every year. Such low rates are therefore unlikely to last. Sooner or later, people will find better things to do with their money, and demand higher returns to hold Treasury debt.

Low interest rates are partially a result of the Fed's deliberate efforts. During the past year's $600 billion "quantitative easing," the Fed essentially bought about a third of the Treasury's bond issues, in an effort to raise bond prices and thereby lower interest rates. But both the Fed's desire to keep rates this low and its ability to do so are surely temporary.

Yellen: 'Too many Americans remain unemployed'

Though the Fed remains set on holding interest rates low for now, the minutes also showed that a few Fed officials raised the possibility of increasing interest rates "relatively soon." The Fed has been holding rates near 0% since December 2008.

"We shouldn't focus only on the unemployment rate," Yellen said.

Meanwhile, inflation remains well below the Fed's goal of 2% per year.

"Too many Americans remain unemployed, inflation remains below our longer-run objective, and the work of making the financial system more robust has not yet been completed," Yellen said.

Forecast For U.S. Treasury Bonds: 

Based upon all the above rationale and financial history, U.S, Treasury Bonds should fall below it 32-year bull trendline …as interest rates rise in 2014.  CONSEQUENTLY, this will fuel the Inflation Rate much higher than most bankers are anticipating.


A currently related analysis is “U.S. Dollar Forecast”


1 cubic foot of silver weighs approx 655 pounds whereas 1 cubic foot of gold weighs more than half a ton.

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