(Melchizedek Communique, MC010710) $2-trillion in new Treasury bond offerings is scheduled to hit the market in 2010. "Whoa, pardner." The bond vigilantes have formed a posse. They are riding hard to head 'em off at the pass. "Reach for the sky" with the interest rates, they might demand.

Bond buyers might force yields up before they are willing to buy U.S. Treasuries. [1] But the "Federal" Reserve could counter-attack by buying some of the T-bills themselves. (Background: "Financials are 'Thick as a Brick'", http://www.shout.net/~bigred/mc010610.html)

The bond interest rates are also called the "yields." If the yields go up, the price of bonds goes down. If you are holding, say, 2 percent bonds, and the yields rise to 4 percent, then who wants to buy your 2 percent bonds? They pass you by, and purchase 4 percent bonds. The price of your 2 percent bonds drops. In extreme cases, there is a "bond meltdown."

"There is going to be a meltdown. It's time to get out of bonds," states Dan Deighan, founder of Deighan Financial Advisors. [2] In other words, Deighan foresees the yields are about to rise.

Pacific Investment Management Co. (PIMCO) "may favor German bonds over Treasuries in 2010, Bill Gross, the company’s co-chief investment officer, told Time magazine." [3] The new financials poetry term is "sovereign bonds." That signifies various government debts, as opposed to corporate bonds, which signify various business debts.

There is "a hefty amount of supply that must be absorbed in due course," said Ian Lyngen, a strategist at CRT Capital Group LLC in Stamford, Connecticut. [4] And the "hefty supply" is about to be increased by $2 trillion of Treasury bond offerings in 2010.

There has been a "contraction of M3 money in the US and Europe over the last six months," claims Ambrose Evans-Pritchard. [5] But how can Evans-Pritchard know this, since the "Federal" Reserve has stopped publishing the M3 stats? In a recent book, End the Fed, Congressman Ron Paul advises consulting an alternative measure to M3, the "MZM" (Money with Zero Maturity). Congressman Paul claims MZM has been escalating at an annual rate of 20 percent. (Background: "Congressman Says, 'End the Fed'", http://www.shout.net/~bigred/mc120209.html)

Ron Paul's book was current on the MZM as of about six months ago. But in September 2009, according to a report in the Wall Street Journal, M2 (funds that are readily accessible for spending, plus savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals) had briefly fallen at a 12% annualized rate. MZM had fallen at a 16% annualized pace in the same 4-week time frame. [6]

But with $2 trillion in bond offerings, what will that do to the MZM, M3, and M2? And how will such a tremendous cash infusion affect the 2010 elections?

------- Notes -------
[1] "Bond vigilantes could send rates higher", by Allan Robinson. theglobeandmail.com, Jan. 5, 2010
[2] "Deighan: Get Out of Bonds Before Meltdown Hits", by Dan Weil. Newsmax, Dec. 31, 2009
[3] "Pimco May Favor German Bonds Over U.S. Treasuries, Time Reports", by Wes Goodman. Bloomberg, Jan. 6, 2010
[4] "Why Bonds May Trail Stocks Again in 2010", by Cordell Eddings. Bloomberg, Jan. 4, 2010
[5] "Global bear rally will deflate as Japan leads world in sovereign bond crisis", by Ambrose Evans-Pritchard. Telegraph (U.K.), Jan. 4, 2010
[6] "As Liquidity Drains, So Does Inflation Risk", Wall Street Journal, Sept. 9, 2009