Bond market sees recession and QE 2.5

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“We don’t have clarity,” says Chicago-based bond trader Jeff Kilburg, the Sr. Development Director of Treasurycurve.com. “The market wants clarity and they want it now.”

On the one hand, Kilburg says we have been given an unprecedented degree of clarity from the Fed in terms of its new low rate forecast for the next two years, but on the other hand is the harsh economic reality that outlook portends, as well as the Fed’s inability to do anything about it. “It’s not 2008. Ben Bernanke is not rolling down the street in that tactical hummer with every weapon in his aresenal. He’s more or less rolling in a mini van right now,” Kilburg quips.

With nearly 15 years of experience trading Treasuries, Kilburg is now more than ever looking to the bond market for leadership and to relinquish all notions on falling yields. “We had this exact conversation when the 10-year treasury came down to 3%. Now we just went down to 2%. Rewind back to April and the 10-year was at 3.75%,” he points out.

So are Treasuries are telling us we’re in a recession?

“I think we are, no doubt about it,” says this former Notre Dame football player. “You can call it whatever you want… but I think we are actually bottoming out in the Treasury market…but I think we are going to see continued chaos…and I’m just hoping we get through this quickly.”

Instead of another full blow round of QE3, Kilburg says we will likely get “QE 2-and-a-half” which would see the Fed holding on to its recently acquired $1.5 trillion of Treasuries a lot longer then anticipated.

“Yesterday, the bulls put the flag on the front lawn and claimed victory. I don’t know if it’s as much of a bull victory as much as it is a technical bounce.”

Will forecasts for recession here and growing problems in Europe continue to fuel the flight to safety? Will you buy Treasuries with even lower yields? Let us know your thoughts below.