With the sharp drop in the 10 yr bond yield over the past month after touching 4%, the move has retraced almost 50% of the rise from the 2.5% level that occurred right after the FOMC announced a step up of their QE policy on March 18th and said they were going to start buying US Treasuries directly. The exact 50% retracement is 3.24% and to put this level in perspective look at the previous deflation scare (with the Fed in their Halloween masks feeding the scare) in 2002 and 2003 when the 10 yr bond yield dropped to 3.11%. Interestingly, Bernanke gave his ‘helicopter Ben’ speech “Deflation: Making Sure ‘It’ Doesn’t Happen Here” on November 21st 2002 when the CRB index was at 230.30, a touch below where it is today and the 10 yr bond yield was at 4.15% on that day vs 3.30% today.
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