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The 10-Year Treasury Has Had its Longest Slide in Three Months.

The 10-year treasury has had its longest slide in three months.  The behemoth money management firm Blackrock stated yesterday an improving labor market and signs of inflation argue for the Federal Reserve to boost borrowing costs.

Yesterday I referenced a Fed study stating that investors are “less uncertain” regarding as to when the central bank will increase rates as compared to the Federal Reserve itself, an oxymoronic position.

Is this a pushback on this view?

The headlines will soon be filled with banter and speculation about the outcome of the September 16-17 Fed meeting.

This nervousness is reflected in the three year Treasury note yield which rose to the highest level since July 31.  Moreover the yield for the $27 billion 3 year note auction yesterday rose to the highest since April 2011.

To refresh all, the current down leg on yields commenced in February/March 2011.  What is this suggesting?  Is or has the trend turned?

If yields on the 10-year Treasury rose to April 2011 levels, the 10 –year would yield 3.58% or 108 basis points higher than yesterday’s close.  If this were to occur, according to Bloomberg the 10-year would have a negative six month total return of almost 15% and one would have to hold this bond until May 2017 to breakeven on a total return basis.

Ouch!

Because of monetary uncertainty, the Dow declined about 100 points.  Is this just needed profit taking?

I reiterate barring any major externality the odds of any substantial decline—defined as greater than 10%-12%–are low because of the massive liquidity within the financial system.

There is little on today’s economic calendar other than wholesale inventory data which historically has little market impact.

Last night the foreign markets were mixed.  London was up 0.06%, Paris down 0.02% and Frankfurt down 0.09%.  Japan was up 0.25% and Hang Sang down 1.93%.

The Dow should open flat. Will the Fed inject some uncertainty into the markets?  The 10-year is off 5/32 to yield 2.52%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.