We are 62 trading days in from the first Fed rate cute this cycle. Let’s compare treasury yields to other cycles.
The above chart compares the reaction of 10-year treasury yields for 120 business days starting the day before the first rate cut in each cycle.
10-Year Treasury Yield Change at 62 Days
- 1995: 6.05% to 6.15%, +0.10 PP
- 1998: 4.61% to 4.78%, +0.17 PP
- 2001: 4.78% to 5.28%, +0.50 PP
- 2007: 4.48% to 4.24%, -0.24 PP
- 2024: 3.63% to 4.40%, +0.77 PP
Those are all the rate cut cycles since 1990, and that’s as far back as Treasury download data goes.
In the 2020 Covid pandemic, the Fed cut a total of 1.5 percentage points at its meetings on March 3 and March 15, 2020. These cuts lowered the funds rate to a range of 0% to 0.25%.
The Covid rate cut cycle, if you call it one, lasted less than 2 weeks.
Comparison Thoughts
Every cycle is different, but of the five cycles, the 10-year treasury yield reaction in 2024 is the most adverse for the first two months.
The most similar path is 1998 when the Fed had no business cutting rates at all.
However, in 1998 Alan Greenspan was worried about a Y2K collapse and feared all mainframe computer programs would collapse at the turn of the century.
Those rate cuts fueled a massive stock market bubble that collapsed in March of 2000.
Meanwhile, In China
Please see China’s 10-Year Bond Yield Hits New Record Low on Disappointing Data
The Japanification of China takes another big leap forward. And a huge fight with Trump is coming up.
There’s an article on Bloomberg this morning that I can’t access quoting a T. Rowe Price analyst raising the “prospect” of 6% Treasury yields on fiscal risk.
The most glaring difference between 2024 and the previous instances is a $36,000,000,000,000 Federal debt that is accelerating.
Mish is not the 1998 +0.5 (not +0.17) … 5.28-4.78?
0.17 is correct
62 days from the start to now is 4.78 minus 4.61
I added that last point just to show 120 days.
Criminal that Yellen didn’t term out the long term debt when she had the chance. Treason
People love to misuse the constitutionally-defined word “treason” all the time, but I don’t think I’ve seen such misuse quite so glaring as that.
“Every cycle is different, but of the five cycles, the 10-year treasury yield reaction in 2024 is the most adverse for the first two months.”
And that’s because a recession is nowhere to be found going into 2025. The best parallels are 95 & 98, but we didn’t have $36.2T in debt then now did we?
Everything about our economy has to be viewed through the lens of debt, especially bond prices. Trump is either going to be successful with changing the paradigm:
Cutting spending with just enough coupled with a rise in revenue from tariffs & growing the economy via tax cuts without lurching us into a recession.
Otherwise, he’s going to fail, possibly spectacularly, because there’s this noose around our neck that’s $37T and rising.
The $36 TRILLION (and growing at $1 TRILLION every four months) in Federal debt is the 400 lb. gorilla in the room.
The Fed also wants a positively sloped yield curve to enhance bank profitability (Interest on excess reserves is simultaneously being reduced). The fact that the US Treasury gets to re-finance more cheaply at the short-end (for now) is the cherry on top.
You (and others) have said this same thing before about the Fed helping the Treasury (and really Congress) finance its deficit spending CHEAPLY with its current rate cuts. You should stop visiting the websites or YouTube channels giving you this false narrative; it’s not a giant conspiracy.
The $36 trillion in US government debt gets added to frequently now (unfortunately) and older bonds get rolled over all the time at current interest rates. This info is easily found online: https://www.statista.com/statistics/1382455/monthly-interest-rate-us-debt/ and there you will see the Fed’s and market’s actions actually doubled the overall rate of interest on total US debt in the past 2.5 years, not made it cheaper.
But Trump and the Republican Congress better get to work soon for us voters. Because the average rate on US debt is still only currently 3.3%. And all current financing rates (short- and long-term) are higher than that. So all that new and rolled-over debt is only going to get more expensive as each week passes.
Agree. Paying the interest on the debt will eventually become unserviceable. Most likely other programs will have to be cut to fund debt obligations. Increased taxes will be on the horizon, not tax cuts.
why won’t this damn government address inflation and the deficit first?
Who benefits from inflation and deficits? Yes, there is a constituency behind these policies and it is not John Q Public.
This is why there is so much push against having a Populist President coming back into power.
Follow the money and the answer you seek will reveal itself.
We need a monetary and financial revolution on par with the foresight of 1776 and the decisive punishments of 1789.
What happened in 1913 needs to be reversed. If no one talks about it on the grand stage nothing will change.
Rather then outright reset which would lead to severe short term consequences am of mind there will be more of a long and dragged out process.
There is little political will to change and in general most people have no idea what is going on. For those who do recognize that a different direction is inevitable, as current path is invoking institutional failure, about only option is diversify for several different roads.
Because the government is made of millionaires that benefit from these things , and so the government will be made of billionaires that benefit even more.
Elon’s already angling for a pardon and rescinding the requirement to report crashes causes by self driving cars. His is only the first hand in the cookie jar.
If the Fed doesn’t stop cutting short term rates, the 10 year will probably climb past 5% soon. One might expect adjustable rate mortgages to make a comeback, but remember that any mortgage with an initial fixed period shorter than five years is effectively illegal post-Dodd/Frank.
62 days? Is that 62 trading days, Mish? Must be, because it’s been about 94 calendar days. Sorry if that’s a dumb question.
yes 62 trading days
This graphic you’ve provided makes it difficult to do an ‘eyeball test’ to see any meaningful difference in this sample size of n=5, especially given the myriad of factors that affect long-term bond rates.
But what is most noticeable to me is the 3.63% rate where your last graph line starts. People on this site (and elsewhere) grouse a lot about the ‘massive’ national debt the US has and is accruing. But tens of billions of US notes are auctioned off every couple of weeks and the rate was 3.63% recently on a 10-year long-term bond. Wow! The market spoke here (before the election) about where it wants to put its money for safety and long-term income yield and it ain’t afraid.
It’s going to be interesting to see where that yield ends up in, say, June 2025 when Trump and the Republican Congress have about four months of hitting the ground running to institute fiscal and tariff policies.
Re “since 1990, and that’s as far back as Treasury download data goes.”
Oh c’mon. The strongest parallels are to the 1970s. The data is all over the internet (FRED for instance) even if U.S. Treasury is hiding it. Surely a little more effort would be rewarded here.
then do it
The current cycle is most similar to the 1998 cycle. That gives you about 18 months to the NASDAQ crash.
Inshallah
Everything is relative in markets, US yields should be viewed relative to other Nations..
Yields have seen cycle highs and are to continue downwards.
USD still retains its safe haven appeal. This has not changed and funds are continuing to flow into USD which demand tends to damper upward pressure on Rates.
However a goodly part of the rest of World requires a place to sell their wares. Domestic consumption proves inadequate to keep the Natives from rebelling, Europe and Asia being two biggest regions facing rising unemployment pressures.
So where is the White Knight USA in all of this? It has a resurrected Populist incoming President. Will be watching the Battle shaping up over next spending Budget.
Two paths going forward one is to separate issue of expiring Tax cuts from Defense and vital functions. With a Populist incoming He will choose I believe to not get slowed down right out of the gate and will go with an omnibus Budget extending Tax cuts from his first administration.
He will do so as with a slow economy he is not going to want and rely upon Federal Reserve largess to avoid a recession. Any inflationary pressures resulting from said policy, would be tempered by overseas USD demand.
Tariffs would be part of the overall process of putting Americas workers ahead of other countries and fulfilling his role as Populist America First President.
I expect yields to fall but they will remain elevated over other Nations Yields which is a Bull case for USD
Not to beat a horse with a stick, Canada’s finance minister Freeland has resigned demonstrating that Tariff threat is getting taken seriously by governmental finance advisors.
Also supportive that Trump will take measures that put running Americas economy back under some Executive Branch revue. Bear in mind Federal Reserve act signed into Law by President Wilson was supposed to be a compromise between private Bank interests and Populist needs.
Federal Reserve as it currently operates has engineered an economy where a few people control most of the assets, which is contrary to the rational as to why it got founded.
Hard to imagine they cut again with the backdrop the way it is.
Hard to swallow? Yes. Hard to imagine? Hardly. They’ve all but told you they are cutting again…and 2 more times after that!!
And after spending a weekend slowly meandering in a few stores while waiting for something to complete I cannot stomach any more inflation. Oh so many things I look at are at price levels that, had you told me 4 years ago they would be where they are. I would have thought we were already in Dystopia. I see absolutely nothing “flying off the shelves” nor do I see retailers (or services providers, governments, health care, etc) blinking. They simply will not sell for less. The fed lowering now is simply to lock in these price levels in the minds of the populace. The attempt at a check-valve in home prices, stock prices, good & services prices. They seem quite comfortable, and smug, that the overall massive debt got priced 40% lower over the last 4 years, in current monetary terms, without the U.S. blowing up…..yet. It’s that last “yet” they are trying to avoid. I’m pulling for them to be wrong, oddly enough, because I think these levels of inflation have ripped us apart where there is a wider gap of winners and losers and that breeds a powder keg of satisfaction vs dissatisfaction.
I’ve had to cut back my spending due to inflation. A very painful four years in this country. Damaging
That’s what you get for being poor. You should have chosen a rich daddy.
They’re concerned about interest expense. They’ve signaled that borrowing is shifting heavily to short-term bills & notes, so they’re not overly concerned with the 10-year rising higher. In fact, it needs to stay high for a lot longer to get housing to roll over without inducing a recession.
I don’t think anyone should be surprised when RRPOs go to near zero in 1st quarter and the Fed suddenly announces that they’re suspending QT. At that point, it won’t be long before the Fed starts buying long-term notes & bonds without us being in a declared recession.
I fully expect the Fed to execute QE / yield curve control outside of a declared or imminent recession.