(Melchizedek Communique, MC010210) There are mutterings in the bond market.

If the yields go up, the bond prices go down. Otherwise, if the yields go down, the bond prices go up.

Britain's Telegraph newspaper carries a warning: "[B]etting on higher Treasury yields in 2010 may prove dangerous." If you bet on the yields [interest] going up, and there is a "Greenspan conundrum", you won't realize your bet. [1]

The "Greenspan conundrum" evokes 2005, when something strange happened on the way to higher interest rates: they declined. "Federal" Reserve chief Alan Greenspan sighed and said, "It is a conundrum." [2]

The "Fed" will be "tightening the noose" (contracting the money supply) some foresee. (Background: "Is the 'Federal' Reserve about to tighten money?", Melchizedek Communique, Dec. 28, 2009) This is predicted to start coincident to Mars going forward in March 2010.

So the foreseen (by some) monetary tightening causes wheeler dealers to bet the interest rates on Treasury bills will be rising.

And many intuitively decide, China will be wanting higher interest in return for its purchases of U.S. debt. Ah, but there is an old saying: "If you owe the bank a small amount, the bank owns you. If you owe the bank a huge sum, you own the bank." [3] China, counter-intuitively, is in hock to the United States since it can't afford for its major debtor to fail.

Reportedly, Karl Case, co-founder of the Case-Shiller home price index, is worried. House prices have been rising, true. But the rate of increase has plummeted. Suppose that more loans go bad. That increases the supply of foreclosed houses, and down go prices. And also, the government tax credit for home purchases is fading in effect. [4]

And, if the house prices fell far enough, then even the homeless people could buy a house.

So the house prices fall, the homeless people buy houses, and what does this mean for the bond market? The homeless people are "sitting pretty" on the front porch. They actually own the house. Since it cost next to nothing, no bonds had to be sold. This means the bond salespersons are wandering door to door, begging people to buy bonds.

Bond Salesperson: "Hello, sir or madam. Bonds on sale today. Low, low rates."

Formerly homeless person: "Uh, no thanks."

So, there are mutterings. "There is going to be a meltdown. It's time to get out of bonds," warns Dan Deighan, founder of Deighan Financial Advisors. [5]

However, on the plus side, if there is a bond meltdown and a corresponding plunge in house prices, then more people will be able to afford a home. And isn't that what houses are for?

------- Notes -------
[1] "Why betting on higher Treasury yields in 2010 may prove dangerous", by Agnes Crane.
Telegraph (U.K.), Jan. 1, 2010
[2] "Greenspan's 'Conundrum'", Newsweek, March 7, 2005
[3] "Be wary of the US healthcare bill", Global Times, Dec. 28, 2009
http://opinion.globaltimes.cn/editorial/2009-12/494840.html
[4] "Case: Housing Prices Poised to Fall 15 Percent", by Dan Weil. Newsmax, Dec. 31, 2009
[5] "Deighan: Get Out of Bonds Before Meltdown Hits", by Dan Weil. Newsmax, Dec. 31, 2009