10 Year Treasury Appreciation Model

[nodoodahs]

This model attempts to predict the appreciation of the 10 Yr Treasury over the next 13 weeks.

The prediction is
AVERAGE MINIMUM MEDIAN MAXIMUM STDEV
0.55% -26.27% -0.62% 16.34% 8.40%

Considering that over the experience period, the average read is
AVERAGE MINIMUM MEDIAN MAXIMUM STDEV
1.68% -26.27% 1.03% 31.79% 8.69%

This is a reasonably bearish prediction for the 10YT, in the 3rd decile. It suggests a continued rise in the yield. This is not good for the mortgage industry or the homebuilders IMO.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

From last Friday's close, both models (3 and 6 month) giving weak signals for lower yields.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Both the six month and quarterly model are still giving very weak signals for lower yields.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Both models now giving weak signals for lower yields.
Quarterly model suggests a couple of basis points lower.
Six month model suggests the same.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

The six-month model is still giving a weak signal for higher yields.
The quarterly model is still giving a weak signal for lower yields.
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Continuing the divergence of models.

The older 13 week model (Dec 9 '05) is predicting very mild bond appreciation (yield drop of 10 or so basis points).

The newer 26 week model (Mar 10 '05) is predicting very mild bond depreciation (yield increase of 20 or so basis points).

At least the divergence is close and perhaps the end result in neutral for yields.


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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

I use the M3 weekly, non-seasonally adjusted. When I do year over year changes, I look back 52 weeks, quarterly back 13 weeks, etc.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[stever]

Bill, could you tell me where you get the m3 money growth changes? I looked on the St Louis FRED, but I am not sure where to look. Is this a weekly number? Thanks, steve

PS , I hope your N O gets through this tragedy ASAP

[nodoodahs]

Check the Friday 8/26 post, new model adds currency exchange rate technicals to the prediction and looks 6 months out. The new model was neutral on 8/26 and suggests falling yield now.

Older model looks 3 months (13 weeks) out and was predicting higher yields last week. It is still predicting higher yields but has edged slightly more neutral.

Some divergence here ... odd but not impossible since the models are different. I could interpret this as "take either with a grain of salt" when divergence exists.

Older model uses money supply changes, SPX technicals, and 10YT technicals and was built stepwise from the bottom for 13 week changes.

New model uses different money supply measures, also uses SPX and 10YT technicals, adds some other interest rate and currency exchange technicals, and looks 26 weeks out. It was built stepwise from the top, eliminating variables with weakest correlations rather than from the bottom (adding variables with strongest correlations).
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Bill,

Don't you mean a rise in yields and thus a bearish outlook for bonds? This would seem to be consistent with your previous posts.

Thanks,

Henry

[nodoodahs]

This model is in the third decile, which suggests a fall in 10YT Yield. I haven't updated my yield curve stuff in a while, I may want to and see if it predicts an inversion ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Revision -

I'm trying to get more out of these models, and I found that if I added some currency movement info to the 10YT Yield model, and stretched the timeline to 26 weeks instead of 13 weeks, I get a better fit. However, this is putting out a "neutral" signal for the 10YT Yield for six months from now. The R on this model is still not super strong so I would interpret "neutral" as "anything goes."

The older model is still predicting higher yields but is pretty close to neutral, too.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Indicator is barely in the 2nd decile, this is bearish for bonds / bullish for yields.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Cary,

Good call on the short-term rally! But I think that's all it is.

This model has rarely been more bearish on bond appreciation. Yields should be going up this quarter.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Cary,

Just curious, why do you follow the 30YT?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Cary]

Bill, I agree with your outlook, but we may be in for a short term rally in prices and fall in yields. T bonds have been selling off steadily for over 5 weeks now. I tend to follow the 30 yr. yield/price. The 30 yr. yield hit the 200 dma today and backed off. So we either blow through it from here, or we get a correction. Either way, I think Treasuries are in for some trouble going forward.

Housing and debt are the new dotcom bubble IMO. The fallout is going to be much worse. Think Japan. Just my 2 pesos.

Cary