Are Bond Vigilantes Buying Bonds?

As yields continue to decline and as the yield curve continues to compress, BusinessWeek asks “Where Are The Bond Vigilantes“

In fact, Bloomberg News reports, there is “deepening concern among bond investors that tepid wage growth and a lack of inflation will persist for years to come.” The story quotes Margaret Kerins, the Chicago-based head of fixed-income strategy at Bank of Montreal: “Potential growth is a huge determinant of that long-term rate and most people are buying into the idea of lower potential growth.”

I think this is the most significant story no one is talking about. While most people believe yields are heading lower due to the lack of inflation, slower growth or simply because the bond market has gone crazy, I do not share in their optimism.

 Here is why the yields are going down and the yield curve is compressing. 

1. The bond market is starting to see a severe recession and a bear market within the US Economy. Our mathematical and timing work confirms the same. Showing a significant recession and a bear market between 2014-2017. 
2. Typically, 30-year bear markets in yield do not end in a V shape form. When such long moves complete they often set a secondary bottom (at least). This fits well within our overall economic forecast as we anticipate yields to set a secondary bottom over the next 2-3 years. In 2016 to be exact.
3. There are a number of open gaps leading all the way down to 1.5-1.6% on a 10-Year Note. Again, it is highly probable yields will go there over the next 2-3 years.

When we put all of this together, it becomes evident that the US Economy and the US Stock Market are in real trouble going forward.