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Treasury Bond Yields: See How a 54-Year Cycle and Wave Analysis Work Together
The current position of this Kondratieff cycle foretells deflation

By Bob Stokes
Fri, 02 Aug 2013 16:15:00 ET
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Robert Prechter says that financial market cycles are likely a by-product of Elliott waves, which may be in sync with fractal waves for a time, but sometimes shift. Hence, market cycles should not be relied upon for precise market timing. 

That said, cycles can still be useful. Prechter notes in his January 2012 Elliott Wave Theorist: "As with waves, applying cycles teaches you to look for evidence indicating an approaching change in direction, a practice not taught in economics courses."
 
Consider the Kondratieff cycle, named after a Russian economist who proposed in a 1926 paper that industrial economies follow a repeating cycle of change in prices and production. In the second edition of Conquer the Crash (pp. 113-114), Prechter notes, "Actually, this cycle is primarily one of liquidity, not price, so rising and declining trends in prices for money, labor and goods are an effect of the cycle, not a cause. ... But the sequence of events within the Kondratieff cycle may be an immutable social process ... ."
 
He goes on to show how cycles apply to Treasury bond yields: "You can also see evidence of the Kondratieff cycle in the price of money extended to reliable borrowers," notes Prechter (p. 116). This chart from the book shows most of four cycles.
 
 
 
As you can see, the pattern of long-term bond yields roughly followed an idealized 54-year Kondratieff cycle. When the chart published in 2002, contrary to prevailing opinion, Prechter predicted that long-term rates on AAA-rated bonds had much farther to fall. Indeed, by July 24, 2012, the yield on 10-year Treasuries reached an all-time record low of 1.39%.
 
Here's a June 2013 update of the chart.
 
 
 
The next phase of the Kondratieff cycle indicates a rise in rates. Indeed, rates have soared since the 2012 low. The Aug. 1, 2013, close on the 10-year Treasury note was 2.74%.
 
EWI's analysis suggests that this new trend in higher yields will be just as spectacular as the 31-year slide down in yields. Find out what EWI sees ahead. 

Get prepared for what comes next in a financial environment of rising bond yields by reading EWI’s updated Special Bonds Combo Report. It shares some of our most important recent commentary and analysis on bonds, including: 
  • an 11-minute video from EWI Chief Market Analyst Steve Hochberg
  • a brand-new bulletin titled "Three Myths About Rising Bond Yields"
  • our 10-page warning to bondholders published last June 
You can get this report along with two months of EWI’s flagship Financial Forecast Service for the price of one month.
 
 

 



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