updated: Dec 26, 2018

When we last focused on bonds back in October [see: Plan B] we noted that 2s10s spreads were collapsing and 10Y prices (ZN) had reached important support.

Now that yields have broken out and prices and spreads have broken down, we’re already beginning to see the effects on the market and the broader economy. Bottom line, they aren’t good.

This followed a supposed “breakout” in yields that we never bought. Even as nearly everyone around us called for 3.5 – 4% yields, we saw them falling from 3.24% back to our 2.85% target — which is exactly what happened.

Since then, ZN has rallied sharply, reaching our 121 target last week and threatening higher. And, 10Y yields have broken below a trend line dating back to July 2016.We’ll take a look at the road ahead.

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