|CBOE 10-year Treasury Yield Index (freestockcharts.com)|
In the beginning of the interview, Prechter explained why he believes credit risk will rise across all bond classes (from high yield bonds to munis). And he even thinks credit risk will eventually spread to Treasury bonds, which means he thinks credit downgrades will eventually matter and printing money won't help a solvency crisis. Right? His call makes sense that the thirty year bull market in Treasury bonds is in the process of topping out (or yields in the process of bottoming, see the chart), but what will be the catalyst that brings bond vigilantes to the Treasury bond market during a deflationary depression?
Here is Robert Prechter making the case that Treasury yields are bottoming out.
"Well, we think they are pretty much making a bottom as we speak. This is a different change of opinion over the past thirty years, but we have many indications right now that they have gone a little bit to the point where people are now embracing the trend. As you know, all last year and the first few months of this year people just hated the bond market. They said, "that's the worst... everybody knows rates are going up, you don't want to own bonds." Well now they are embracing them. The latest figure we just saw from the DSI, the Daily Sentiment Index on bonds, which is a poll of futures traders, shows that 97% of them are bullish. Now, the first time we got into the 90s was last August (?), it's been hovering in that area with a few periods of exception all the way until now. That's a long time when traders have been very very bullish. We've also got what we think is perhaps a completed Elliott Wave count there under the Elliott Wave model, for rates on the 10-year Treasury note. We find large speculators have been chasing the trend, and generally when they do that you're near an end on that.
So, we think for the first time, you know we've had this great 20 year move up in the stock market, we've had a 10 year rise in precious metals, and we've also had a 30 year rise in bonds, and I think all of this is part of the great grand super cycle top and the biggest complacency in recorded history. So, I think this maybe the last major bull market topping out, in bonds." (starts at 16:04 / text is not from an official transcript)