Curve watchers anonymous has taken an in-depth review of US treasury yield charts on a monthly and daily basis. There’s something going on that we have not see on a sustained basis since the summer of 2000. Some charts will show what I mean.
Monthly Treasury Yields 3-Month to 30-Years 1998-Present
It’s very unusual to see the yield on the long bond falling for months on end while the yield on 3-month bills and 1-year note rises. It’s difficult to spot the other time that happened because of numerous inversions. A look at the yield curve for Treasuries 3-month to 5-years will make the unusual activity easier to spot.
Monthly Treasury Yields 3-Month to 5-Years 1990-Present
Daily Treasury Yields 3-Month to 5-Years 2016-2017
Daily Treasury Yields 3-Month to 5-Years 2000
One cannot blame this activity on hurricanes or a possible government shutdown. The timeline dates to December of 2016 or March of 2017 depending on how one draws the lines.
This action is not at all indicative of an economy that is strengthening.
Rather, this action is indicative of a market that acts as if the Fed is hiking smack in the face of a pending recession.
Hurricanes could be icing on the cake and will provide a convenient excuse for the Fed and Trump if a recession hits.
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Mike “Mish” Shedlock
Funny, months ago I remember one person here saying the spreads would tighten. Fairly certain it was because they saw the Fed stop their absurd short term unlimited short term selling of rates at 0%. That short term rates would have to normalize and zero was and never is normal. That’s all this is. Not the fed doing this but the contrary, allowing the market to normalize.
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Even if we were in a recession, the interest rate is artificially low. .The FED has no clue on what the normal market interest rate is or should be . Rates now stimulate malinvestment and benefit the financiers.
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It’s not even a given that unmanipulated rates in “recessions” would necessarily trend lower. Credit demand would be down, yes. But so would supply, as lenders worried about the murky outlook, and decided to sit in Gold instead. Rates may go lower, due to lack of demand, or they may go higher, from lack of supply. Which effect wins out, is unknown.
The whole “rates lower in recession” truism, is in and of itself just another artificial construct, brought about by Central Bank meddling. Which in the process slows down the necessary clearing out of malinvestment that is necessary for growth to resume.
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“Rather, this action is indicative of a market that acts as if the Fed is hiking smack in the face of a pending recession.”
…
Likely. Though I wouldn’t discount the ongoing debt ceiling farce having some effect.
Another miss for David Stockman.
Dude promised market mayhem this Fall when no deal reached.
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He’s always so angry. Leveraged his political name for a nice title, but I understand people just couldn’t stand working with him and held very low opinions of his abilities. Some of the things I’ve seen him write makes me pretty certain they kept him very far out of the loop of what was going on at Blackstone.
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I do not know where interest rates should be and neither does the Fed. This action does not smack of economic strength.
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Exactly.
Still have never gotten a straight answer from anyone on what rate “normalization” means.
Total debt / GDP ever climbing … signals (imo) ever lower rates … not back to the “good old days” (normalization?).
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Absolutely.
You cannot have “normalized” interest rates when total debt outstanding is on a parabolic trajectory. The only way this path is sustainable (short-term, only) is with ever-lower interest rates and constant re-financing.
It does not require a PhD to understand this, just common sense.
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Still, the whole matter of timing is open to question. How much sand is left in the upper chamber of the financial world’s hourglass? What event will trigger the next collapse?
IMHO, the 2008 was mostly corruption driven, especially witnessed in the mortgage sector. The dotcom bust of 2000-02 was more of a valuation fantasy with real hardcore FASB Ruling 157 abuse still coming into its own.
What will trigger the great slide of 2018?
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“What will trigger the great slide of 2018?”
For me, this morning, the great slide was triggered by high fiber steel cut oatmeal and a triple shot coffee.
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Recently I saw two large private placements at 9%. That’s the free market talking real inflation and risk of more inflation.
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Sounds more like credit risk.
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2.5%
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A recent buzz (past few years) has been predictive analytics. Not just analytics but using massive amounts of historic and current data to predict future outcomes.
To some degree the graphs shown illustrate it. “Look at latest time this happened, now what comes next.”
With all the market data currently available does any bright spark know if it is being used in the markets or to predict recessions?
Predictive analytics and AI would probably do a better job than any CB and we could see the back of the stuffed shirts.
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AI can only make predictions based on the data it is given, it can’t imagine a scenario it hasn’t seen before (that isn’t reflected in training data).
I doubt any Wall Street bank is going to load data about John Law’s term as Treasurer of France… data of what happens when central bankers are essentially cooking the books worse than Enron would be highly relevant to today’s failed “markets”. Like Bernanke and Yellen, John Law was an economist (boooo!) and believed that printing currency stimulated the economy.
John Law’s scams appeared to work great, for a while. But they were scams, and as the French empire collapsed, Law was forced to flee the country dressed in women’s clothing to avoid being killed by angry mobs.
https://en.wikipedia.org/wiki/John_Law_(economist)
Same garbage theories in, same garbage outcome. Doesn’t take an AI program to connect the dots
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AI has beaten pro’s at Texas Hold’em that are imperfect data games (unlike chess) as some data is hidden and private. Still it can beat humans.
Expect it to play a big part in the next downturn and ever increasing part in the markets.
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“Predictive analytics and AI”…Try adding Martin Armstrong along with your Mish missives…
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Some of the big banks have been recruiting AI staff.
They have no lack of data although some is flaky – inflation measures example.
Some data sources are clean.
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Speaking as someone who does AI for banks… the data is VERY “flakey” as you put it.
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– Rising or falling yields are NOT a sign of an economy getteing weaker or stronger. It’s a “Risk Appetite” gauge from a person called “Mr. Market”.
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With markets destroyed for every asset category, we have to rely on prophecies, and Nostradamus predicts that the earth will crash within ten years. That explains the inverted yield curve. /s
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the faintest glimmer suggesting Dollar is no longer a safe haven
why now ?
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Contrary to the propaganda spewed by academia, there are LOTS of examples of major economic powers, ones that issue debt in their own currency, defaulting on sovereign debt.
England defaulted at least TWICE during the 20th century (plus several partial defaults). France defaulted the century before, as a con-man named John Law pulled many of the same scams we are watching Bernanke-Yellen and Draghi pull today.
As it becomes more and more obvious that the US government cannot (is not able to) pay its debts, why would any sane person talk about zero interest rates?
Blindly following the trend of the last 20-30 years is exactly the strategy sub-prime lenders used to justify no-doc, no income verification, zero down mortgages….
US debt yields don’t even compensate for known risks (CPI inflation 2-2.5%, never mind actual cost of living or taxes on Treasury). Lots of possible risks (including a very likely default) aren’t even considered.
Dumb money chasing two clueless central bankers. A fun game to play with other people’s money (which is why Wall Street loves to play and lure in the suckers… um, customers)
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This article detailing England’s dances with default suggests that — willingness to pay is as important as ability to pay. Reputation helps prevent default.
https://www.bondvigilantes.com/blog/2010/02/02/what-happened-the-last-time-the-uk-defaulted/
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The article says England defaulted at least twice.
The politicians in the US, for political reasons (not objective) decided to ignore the problem and decree that they thought England was good for the money “at some point”, so they weren’t going to foreclose or cut off further credit.
Saying the politicians are going to pretend there is no problem is not the same thing as saying there isn’t a problem.
Its not willingness to pay, its political willingness to pretend / stick their heads in the sand for political reasons.
And many times, the cost of foreclosing (seizing collateral) is more than what creditors expect to collect. That is still a default, it just means creditors are rationally not pressing claims because there is nothing to collect.
Sovereign collateral is generally useless to creditors (one can’t really take the Queen’s crown jewels, nor confiscate the grand canyon). Difficulty collecting collateral doesn’t change the fact it is still a default.
Tell us about the willingness of the US government to honor their commitments to veterans (VA hospitals). That should tell creditors all they need to know about the full faith and credit of Congress. When (not if) the going gets tough, they will make excuses and default on promise after promise. They are already doing so.
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As long as the govt can print its own money via the fed buying bonds as is the case of the BOJ inJapan, it would seem like it can go on forever, Japan has over 200% GDP in govt debt, i think its actually 270%, the yen is strong and nothing untoward has happened. WTF this doesn’t make any sense to me.
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It doesn’t make sense because sovereign bond markets are determined by many factors, none of which have to do with the actual government. JGB’s, for instance, are governed by yen/dollar forex swaps, with the yield of the JGB following the basis swap rate and the yen following eurodollar make futures. Yields are determined by banks, not governments
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Sovereign bond yields in Europe vary greatly country-to-country even though in theory all Eurozone sovereign debt is supposed to be equal.
It isn’t. Admmidetely the spreads should be greater but you are wrong about “none of the factors have anything to do with “actual government”.
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If the JGB is buying all of Japanese govt debt there is no marketplace for it to trade in.The interest rate is essentially zero. I don’t see how the eurodollar interest rate would affect this. Banks aren’t buying JGB’s they are shut out of the market all together, as I understand it. If the national reserve banks weren’t monetizing a major portion of govt debt I bet their yields would rise significantly.
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The Chinese moves withe Yuan/gold/oil must look very attractive compared with the petrodollar.
http://www.globalresearch.ca/trading-oil-for-gold-chinas-gold-backed-petro-yuan-market-threatens-the-us-dollar/5608136
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Not sure about anyone else, but to me the whole show ( not just the US) is looking tired and out of ideas. I’m not getting the impression that anyone knows what they are doing, lots of stalemates, and voids of meaning or understanding.
Maybe just a return to reality, maybe stifled mayhem, maybe just coz its late for me to be typing.
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Let’s try an old idea: revalue gold to ~$6,000/oz. That should do it.
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Oh its worth more than that 😉 .
Here is another old tune, this time sung by Don Williams, and in his memory.
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Would agree Crysangle. Out of breath.
Vitality flagging or non-existent.
Vitality is interesting. Lack of it can be a symptom of depression.
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I’m not one to get depressed, but I do know that the times I feel lowest is when I apply myself without outcome. This is particularly true when dealing with bureaucracy for some reason… things which you expect to work and have always taken as holding a certain meaning…when you find no answers, runarounds, that there is no definition… it is like pouring water into a container with a hole…sense of futility and apathy follow – maybe that is the answer that is wanted to be installed, as it makes people easier to control, or maybe incompetence and “self reward” are catching. Maybe both.
Vitality…is vital, amazing to watch how people channel theirs, and why.
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The most salient fact about interest rates right now is that the US federal government can not allow them to increase or else it will become unable to pay the interest on the national debt.
For the past 5000 years there has never been a zero interest rate or a negative interest rate, until the past decade.
This was because there was an actual market for debt and nobody wanted to assume a risk without a reward in the form of interest payments.
Today the international central banking cartel has artificially forced rates to near-zero, zero, or below zero because all of the governments are so deeply indebted that they can not pay their bills without artificially low rates.
Inflation confiscates wealth without any actual transfer of money, as the value of money itself is eradicated over time. This seems less painful than taxation or borrowing but it is more harmful in the long run.
The plan is for interest rates to be held low until the system collapses entirely. The normal market has been short-circuited, and it is effectively inoperative. Japan has all but killed its market in bonds, and stocks will be next, and it will continue until central banks own every available asset that money can buy.
By then we will have arrived at Communism, where the state owns all means of production, by the ironic route of central banking, rather than central committees of the Politburo.
The side effect of ZIRP and NIRP is that nobody wants to invest in anything because they are in essence assuming risk with no reward. This is also causing even routine business investments such as replacing worn out equipment to dry up, as there is no prospect for growth in consumption when everybody else is not investing in growth, nor even spending normally to a maintain a static rate of production.
The economy becomes an insect trapped in amber, frozen still until the system collapses and normal interest rates return.
‘You didn’t build that’ was not simply an opinion, it became a self-fulfilling prophecy.
Government has consumed more than the economy has produced and there is no incentive to build anything anymore.
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+1
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“(The plan is for interest rates to be held low) – until the system collapses entirely. ”
Your observations (and similar articles by others) make sense to me, until we get to the “collapse” part, which then – at least for me – goes to blue screen.
Can you describe real life “collapse” in the US – ie, a 1970s British brown outs /lousy food/ high unemployment, or a huge rich-poor divide with private security forces like present day Nigeria, S Africa, etc.
What is “collapse” in real terms?
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“For the past 5000 years there has never been a zero interest rate or a negative interest rate, until the past decade.”
In other words, not in the history of human civilization has this happened.
The greatest financial fraud in the history of the world.
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@Campbell. For me, it will be NWO stuff. Like governments agreeing to end ICEs and move to EVs. “Order out of chaos” to quote David Icke. Problem – reaction – solution.
Abolishing cash, preventing bank runs, migration insanity in Europe.
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