In light of the highly-touted strength in new home sales with prices at record highs, one might have expected US Treasury yields to soar. Let’s take a look at what did happen.
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Rate Hike Odds Drop
Big Yawn
In addition to the bond market letting out a big yawn, rate hike odds did the same. In fact, they declined slightly from 53.2% to 48.7%.
The Global Macro Monitor blog via ZeroHedge blames the Incredible Shrinking Relative Float Of Treasury Bonds and central bank manipulation for falling yields.
Manipulation is certainly present, but the Fed stopped padding its balance sheet long ago. And it’s pretty clear the key decision-makers at the Fed want to hike.
Thus, it’s a big mistake to discount the idea of a weakening economy as the primary reason yields are falling even if the absolute level of yields is in serious question by manipulative actions.
Mike “Mish” Shedlock
It is the market sending a signal.
What signals are the rate setters really watching or are they on a mission no matter what?
If rising rates do finally break something no one can say there wasn’t a warning all was not as well as appeared & yet they still took action to tighten.
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“Thus, it’s a big mistake to discount the idea of a weakening economy as the primary reason yields are falling even if the absolute level of yields is in serious question by manipulative actions.”
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Spot on … the best is yet to come re bond yields.
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“The Global Macro Monitor blog via ZeroHedge blames the Incredible Shrinking Relative Float Of Treasury Bonds and central bank manipulation for falling yields.”
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They missed the obvious. The debt ceiling being reached in March has meant no new issuance (outside of rollover) of treasuries. Treasury has been raiding various trust funds to pay the bills … supposedly Octoberish is deadline for Treasury running out of $$s. Crimped supply has helped keep rates low … for now.
https://www.treasurydirect.gov/NP/debt/search?startMonth=03&startDay=01&startYear=2017&endMonth=06&endDay=27&endYear=2017
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Bond market and price discovery are broken — that’s why the Fed is in such a panic to normalize interest rates before they really need it.
The only people messing with Treasuries now are the Fed manipulators and former sell side / now hedge fund “talent” that just front run the Fed. Everyone else lost interest in buying bonds from a government that doesn’t keep its promises and doesn’t yield enough to cover CPI even before taxes.
The treasury market is in YUGE trouble, and Yellen has less than 7 months to cover her tracks. The next Fed chair is going to want to clear all the Bernanke / Yellen skeletons out of the closet, and Yellen knows it. Bernanke does too, but he is way too arrogant to care what other people think. He knows there will be no forgiveness for his “saving the world” by drowning it in debt.
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“The treasury market is in YUGE trouble,”
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Hardly.
Treasuries will be last (or close to it) domino to fall.
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They already did fall. That’s why they no longer signal anything about the economy.
Oh wait, you only look at the last quote…
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“last quote”?
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The interest rate trend (for the long end treasuries) the past 35 years has been down.
That trend will continue.
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@Bennett — “The interest rate trend (for the long end treasuries) the past 35 years has been down.”
And for the 12 years before that, the trend was up. No one anticipated either turn. You proved you can mindlessly and linearly interpolate the recent past. Lets call it recency bias, because you won’t like being called lazy.
Then you wrote “That trend will continue.” which if you were a real analyst you would have written “Tony Bennett **THINKS** the trend will continue, but he isn’t certain and no one is.” If you worked for a real bank, your compliance department would have required you to insert a statement that the bank does not and cannot guarantee any trend will continue indefinitely, or even continue to the next day. No professional would ever make such a guarantee.
You did not refute that the “market” under Yellen has ceased to provide market price discovery. During at least half of Bernanke’s regime, and ALL of Yellen’s regime, the Fed has openly and flagrantly manipulated interest rates. Are you going to embarrass yourself and suggest otherwise?
The problem I cited from the beginning is that the bond MARKET ceased to function years ago — when Bernanke stopped being a lender of last resort and went all Hunt brothers on what used to be the treasury market.
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Look at what has happened to the oil price in the past two months.
What a handful of new houses happened to sell for last month means absolutely nothing.
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Reblogged this on World Peace Forum.
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Mortgage debt is in equilibrium with long sovereign debt and QE did move both because the Fed bought both, but as Mish notes that’s been over a long while. Still at full throttle is bond and equity buying by BOJ, ECB, BOE, and soon I predict BOC. A lot of that money will find its way over here after bidding up the dollar which explains the strong dollar plus high equities and low rates here. Good example of history not repeating but definitely rhyming. No MBS bubble, this time for example, but strong feeling I’ve seen this movie before. Now it’s student loans guaranteed by govt.,subprime auto loans, and god knows what else. Insurance company failures? Strings of retailer bankruptcy like Sears? Whole states failing like Illinois? Lots of cats and dogs lying together. Real biblical stuff.
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Definitely rhyming.
Even the token “stress testing” of the banking system has shown up, seemingly on schedule :
https://www.usatoday.com/story/money/markets/2016/06/23/bank-stress-test-placeholder/86294294/
All that’s missing is some platitudes from Bernanke and Barney Frank insisting that everything is fine.
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Why do house prices and the stock market get exempted from inflation?
And why do house prices not take into account the size of the house when compared historically.
We don’t exclude inflation when comparing automobile prices historically, but we do exclude improvements in automobiles for the most part – today’s standard accord with bluetooth, ABS, etc. etc. is a luxury car from 15 years ago (I know bluetooth didn’t exist then, but you get my point).
Add in inflation and my house is still 15% lower than my neighbor paid in 2006. And he has a smaller lot and house than I do.
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– When I look at the 3 month T-bill rate today (!!!) then it’s highly unlikely that they will hike next time. Now I think that more likely that the FED is going to lower rates next time.
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