Pronouncements of the death of the treasury bull market, at least judging by the two-year note have once again proven to be premature.
Bloomberg reports Treasury Two-Year Yield Drops to Record Low on Slowdown Concern
Treasuries rose, pushing two-year note yields to a record low, after Federal Reserve reports showing that manufacturing cooled in the Philadelphia and New York regions raised concern the economic recovery is faltering.
Yields on two-year notes, the most sensitive to changes in central bank policy, touched 0.5767 percent, the lowest since regular sales of the securities began in 1975. Bank of America Merrill Lynch Index data show Treasuries gained 1.3 percent in the past month, versus a 2.5 percent drop in the Standard & Poor’s 500 Index, as investors sought the relative safety of U.S. government debt.
“We’ve had weak manufacturing data and a drop in equities that are weighing on the Treasury market,” said Michael Cloherty, head of interest-rate strategy in New York at Royal Bank of Canada, one of the 18 primary dealers that trade directly with the Fed. “The fundamental low-growth economic picture hasn’t changed. Still, yields this low require constant bad news to hold.”
Former Fed Chairman Alan Greenspan said reducing the deficit is “going to be far more difficult than anybody imagines” after “a decade of major increases in federal spending and major tax cuts.”
“Unless we start to come to grips with this long-term outlook, we are going to have major problems,” said Greenspan, who led the U.S. central bank from 1987 to 2006.
That last sentence from Greenspan is not quite correct. Greenspan left out where to place the blame: On the Greenspan Fed, the Bernanke Fed, and Congress.
Another problem with his statement is “we are [NOT] going to have major problems” … “We HAVE major problems”, and the Greenspan Fed moral hazard policy of bailing out banks every time they got in trouble is one of the huge reasons we do.
Yield Curve as of 2010-07-15
click on chart for sharper image
2-Year treasuries are at record lows. I expect 5-year treasuries to hit record lows and for 10-year treasuries to at least challenge record lows. If so, the treasury bull market by any practical measure is still alive and kicking.
Mike “Mish” Shedlock
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