The TLT ETF went up Thursday, thank goodness, but we need to step back and look at the long-term picture of what is happening with Treasury bonds.

What you are looking at above is a chart of the 2 and 10 year Treasury bond yield curve. It is below zero because the 10 year bond yield is below that of the two year. Normally it’s above zero.

Why should someone accept being paid less yield on longer term debt than short term on a bond?

They do it if they think the interest rates are going to change.

When the yield curve is below zero, historically, it has meant that bond investors have believed that short-term rates are going to be lowered by the Federal Reserve, so want to long-term yield rate, even if it lower. Typically they did that in response to a recession and a stock market bear market.

This is why an inverted yield curve, one below zero, has historically been the most reliable indicator of a coming recession there, but a recession has not happened yet and the yield curve has been below zero longer than it has ever been before.

What I want to point out is that when in the past the recession, or stock market bear market, didn’t actually start until the yield curve went from being below zero to back above it, as you can see in the two examples in the chart.

When that happens again it’ll be a huge signal that a bear market for the stock market is here and confirmed.

There may be plenty of warning signs beforehand, but this will be the ultimate and final signal of bear market confirmation.

Today it is still below zero.

There is another reason it could get above zero, besides the Federal Reserve looking to lower interest rates or a coming recession - and that is if the the long-term yields just go up due to the growing deficit, to cause more bond issuance without an increase in demand for those bonds.

That may start to become a story next year, we just got a little whiff of it last year in September and October, and this week too.

In countries where something like that happens gold goes up as investors look for an alternative to just bonds as a safe haven instrument. Maybe that is one reason gold and silver started a new bull market this year.

And…..

If you haven’t done it yet, now is the time to upgrade to the new WSW Pro service, because the price is going to go up 10X on Sunday.

The good news is it’s only $17.95 today, so it hardly costs anything to do it now.

I made it super cheap this first week to get you in for basically nothing, but I can’t keep the price this low much longer.

The reason why is that I’ve only moved you, and about five hundred, others over to this new service from the old WSW site/email list and am going to start to move all the rest over on Sunday.

So, just click here to upgrade.

-Mike

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