Dear CIGAs,

The 28 year up trend line cut is right now 112 to 113 on the 30 year bond. When this very long term up trend is history the credit crisis that has never ended goes TERMINAL.

The trillions of dollars pumped into the world skeleton financial system, particularly the US financial system, is like the application of Clearasil on a zit. The zit is still there festering but it is tad more difficult to see.

One would expect a bounce or sideways move at or near here as the value is so close to the long term up trend line of the 30 year bond.

Rising U.S. bond yields may spark Credit Crisis II
Fri May 29, 2009 2:43pm EDT
By John Parry – Analysis

NEW YORK (Reuters) – The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.

Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.

Optimists hope that a fragile two-month rally in world stock markets, a rise in U.S. Treasury yields from record lows during the depths of the crisis in late 2008, and some less scary economic data all signal that a recovery is around the corner.

But gloomy analysts insist that thinking is delusional.

Once Credit Crisis Version 2.0 ramps up, foreign investors may punish the U.S. government for borrowing trillions of dollars too much by refusing to buy its debt until bond prices plunge to much cheaper levels.

The telling harbinger is benchmark Treasury note yields’ surge to six-month highs around 3.75 percent this week, as investors began to balk at the record U.S. government borrowing requirement this year.

The U.S. Treasury plans to sell about $2 trillion in new debt this year to fund a $1.8 trillion fiscal deficit.

Heavy selling of U.S. dollar-denominated assets could trigger a full-blown currency crisis and usher in surging inflation, forcing mortgage rates and corporate bond yields up, undermining any rebound in economic activity.

"The financial crisis is a downward spiral with two twists," said George Feiger, chief executive of Contango Capital Advisors in Berkeley, California.

First came the banking crisis and a huge contraction of credit, starting in mid-2007 which resulted in the stock market panic of 2008 which triggered the deepest U.S. recession in at least two decades.

"Once you have got a recession you have good old-fashioned credit losses," Feiger said. "The second leg is now the consequences of the massive recession and it is just now working its way out," he said.

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