Records Made to Be Broken
US Treasury bears are taking it on the chin again today. The long end of the curve staged another big rally.
Yields on long term bonds are approaching record lows.
Recovery Increasingly in Question
- The 30-year long bond is just 19 basis points from the low set in January of 2015.
- The 10-year note is just 20 basis points from the low set in July of 2012.
Warning to Treasury Bears
Rate Hike Odds Collapse Again
It’s beyond ridiculous to consider rate hikes for June. June hike odds have fallen to 2%.
Odds of a hike are less than 50-50 through November.
In December, rate hike odds are roughly 55-45 in favor. That may last until the next poor jobs report.
Related Articles
- April Flashback: 75% of Economists Expected June Hike
- Horrendous Jobs Report: Fed Hiking Not: Payroll Jobs +38K, Employed +26K, Labor Force -458K, Revisions -59K
- Four GDP Estimates: New York Fed Nowcast Up to 2.4% (I’ll Take “The Under”); Modeling Error on Unemployment Rate?
- Construction Questions: Construction Employment Declines Back-to-Back First Time Since May 2012; Questions of the Day
Also consider Diving Into Monthly Treasury Statements: Individual Tax Receipts Slow, Corporates Decline.
Mike “Mish” Shedlock
Back when I was a boy, we walked to school uphill both ways… and Treasury rates were determined by the market, not by 12 clueless academics practicing central planning.
Now the curve flattening doesn’t mean anything (except perhaps that the Treasury market is dying)
Plus you have to pay capital gains tax on any paltry interest you might make with T-bills.
Flat calm surfaces in an ocean or lake may look tranquil, but beware the coming storm and high waves.
Curve flattening is loaded with meaning below the surface. Namely turbulence. Financial system will necessarily leverage up to exploit shrinking yield differentials. Thus, more likelihood of a pinprick or butterfly wing flap equivalent triggering something akin to the 2010 flash crash (sparked by an innocuous trading algorithm in a Midwestern boondock). Could get interesting.
I do not get it. Why would foreign investors line up to buy our bonds at these rates. A move up in rates over the next couple of years will cost them dearly on these purchases. It seems like a dumb play. Too much risk.
Why? To get YIELD (interest rates) as more than $10 trillion of other country sovereign bonds now have no yields at all and many of those actually have negative yields. Moreover, US Treasuries are backed by the full faith and credit of the US government which is the most important and powerful country in the world by far and has the largest single country economy of any country in the world. There is ZERO RISK OF DEFAULT on US Treasuries. That simply is not the case at all with many other sovereign government bonds. Moreover, the US government debt to GDP ratio is a relatively low 105% currently which is drastically lower than the nearly 250% government debt to GDP ratio in Japan. US Treasuries are considered to be CASH EQUIVALENTS and there is no safe investment in the world.
I read your comment below “just in case” before commenting as I’ve by burned before by “internet linearity.” Having thought this safe I say now I think this is a point well taken and indeed the move in the two year has been even more dramatic.
The US dollar remains the global Reserve and the USA still remains in the midst of the biggest energy boom in human History so basically the retail investors long and strong Treasuries are folks on a suicide mission.
These interest rates can fall to .00000005% on the thirty year….but by then silver will be at a million dollars and ounce and gold at a billion.
We already have basically a race war going on courtesy of the Politics of Mass Murder…making “racist comments” look sadly small actually. Who’s doing the body counting anyways? At least during Vietnam the Federal Government felt they could at least handle that part of their War.
Nothing a War of the Sexes can’t solve of course.
The American nomenklatura looks pretty pathetic relative to the Russian variant but hey, the Brooklyn Bridge is always for sale.
It’s a pretty fancy bridge mister so we’re not talking a dollar here….
The prices of the worlds 27 major commodities – including gold and silver – have NOTHING WHATSOEVER to do with the yields (interest rates) on US Treasuries. Commodities have been in a 5 YEAR DOWN CYCLE – including preposterously overpriced commodities such as gold and silver – for the past 5 years and the plunge of commodities started in April 2011. Gold is headed way below $1,000 towards and to its mean of $455 per ounce and silver is headed towards and to its mean of $8 per ounce and perhaps much lower regardless of what happens with the yields on US Treasuries.
The US dollar is not just the global reserve currencies where it accounts for 63% of all global reserves but is the WORLD’S GLOBAL TRANSACTION currency and is used in more than 83% of all global transactions.
The $12.8 trillion market for US Treasuries is the BIGGEST BOND MARKET in the world and demand is the strongest it has ever been which is precisely why yields (interest rates) are as low as they are. Competing sovereign bonds – at least $10 trillion of them – pay zero to negative interest – and are not at all attractive to investors relative to US Treasuries.
The big issue is when yields start to rise on all sovereign bonds largely due to the VASTLY INCREASED RISK ON ALL BONDS. That is already happening big time in the corporate junk bond markets and will be happening very soon in the global sovereign bond markets.
There are 3 components to interest rates.
Interest rates are comprised of:
1) real rate (typically around 3% historically)
2) inflation adjustment (now correctly at zero)
3) risk adjustment (now rising astronomically)
The risk of DEFAULT is higher than ever and will continue to rise.
“Credibility” just means no one “believes you” (“inconceivable!!! “) not that you won’t do it.
When it’s you or me that’s one thing but once no one believes the Federal Reserve will ever do anything to support sound money or accountability in finance these problemsalways take decades to “work out.”
The “supernova” is not in the debt but in the money itself…therefore prices must rise … if not SOAR … to reflect the New Normal.
Of course before a hyperinflation prices usually collapse actually since, well…no one has any cash let alone “cash equivalents.”
So in Point of fact I think what Bill was trying to say was “the 200 TRILLION dollar derivatives market has been going supernova for a few weeks if not months now.”
Now let’s talk nuclear power and Georgia, mister. These things don’t just build themselves ya know!
Huh? Translation?
Socalbeachdude, put this in your pipe and smoke it:
Suppose that in 1913, the year that the Federal Reserve was born (and began inflating our money supply) your great-grandfather put $2,000,000.00 in a vault for his descendants to claim 103 years later. The $2M was split between $1M in paper dollars, and $1M in gold. When you went to the vault yesterday to claim your inheritance, you discovered that the $1M dollars had shrunk (through 103 years of inflation) to a mere $25,000.00, while the $1M in
gold had increased in value to $60,000,000.00. THAT IS THE REALITY OF GOLD VS FIAT! And all your little rants won’t change one thing about 5000 years of history.
Adam Price – so what happens once everyone in the world (exaggeration, I know) is in U.S. Treasuries and then they all want to get out at some point? What happens then? Interest rates skyrocket?
“Get out” of Treasuries and then into what?
That is the conundrum.
Into lifeboats probably.
“US Treasury bears are taking it on the chin again today. The long end of the curve staged another big rally.”
The best yet to come.
My call for YEARS has been for the 10yr note yield to hit 1%.
Will likely turn out to be conservative. Very.
Bonds will drive deeply negative…all of them. To maintain operating margin between asset values (falling ) and bank profits(falling.) Just u you wait and see
“It’s beyond ridiculous to consider rate hikes for June. June hike odds have fallen to 2%.”
The whole US economy has been beyond ridiculous for the last seven years as massive stimulus has only stimulated stagflation.
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