Bond Yields Resume Post-FOMC Crash
Interestingly, the record low 30-year long bond yield was on July 8, 2016 shortly after the UK voted for Brexit (June 23, 2016).
Recession Warning
Bond yields scream “recession” loud and clear for the third time since 2000.
Not even two rate cuts will end this inversion.
Manufacturing Recession Underway, Full Recession Soon
A Global Manufacturing Recession is already underway and Trump’s tariffs made matters worse.
History shows that full recessions followed manufacturing recessions within one quarter, six out of the last seven times.
Mike “Mish” Shedlock
Just woke to see the 2 has gone past the 10, as I type they are the same yield, next up the 3 month is only 4 basis points away from the 30 year. Market to open at least 400 points lower. The PPT is going to have it’s hands full today.
If we get lower rates and removal of tariffs in the second half of this year, I predict no recession in 2020 and a Trump re-election by slim margins. Growth in fact may head back to 3% come election season. That is bad news for Democrats.
Trump already won re-election. Get with the program.
Incumbents have a HUGE advantage. Go ahead and get triggered by that.
The Dems have 20 of the most unqualified people they could find. Fantasies about spending trillions when the government can’t pay for what they already committed to (tax payers are the government). Screw the middle class, give free sh!t to illegal immigrants. Promote drug use, destroy jobs, destroy families, encourage gun violence, make housing unaffordable, make health care unaffordable and lower quality. This is not a platform that can win in any environment. The front runner is the Dan Quayle of democrats, ex-VP Joe Bite Me who will stick his foot in his mouth at every opportunity.
The economy will continue to muddle along for a few more years, and then Trump will be forced to address unsustainable spending that has been building steam for decades. The spendthrift Dems would cause that day of reckoning to be almost immediate. Voters will choose pain later over pain on election day.
Go ahead and complain. Be triggered. Scream about how much you hate Trump. Cry out for your safe space. But if you ever have a moment of honesty with yourself, the people who spent the US government out of existence are in our mirrors, not Washington DC.
Yes. It is always someone else’ smoney isn’t it. The money even has Federal Reserve Note printed on it. There is no guarantee of a Trump victory. Even in the summer of 2007, it looked like the Republicans would hold serve because everyone was reporting the worst was over. It doesn’t take long for economic disasters to strike. 15 months is a long time.
I don’t know where you were in 2007… but baby Bush had all but guaranteed a democrat victory by then
That was because of Iraq, not the economy. Things changed very quickly. In fact the economy not even in the top 2 of concerns in the summer of 2007. The bottom line is things can change very quickly as they did from the summer of 2007.
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2008 Election Issues
The situation in Iraq is overwhelmingly seen as the most important problem facing the country today, and is the top issue Americans at this point say they will take into account in their 2008 presidential vote. The degree to which Iraq will continue to dominate the election by next year is unknowable. A scenario in which U.S. troops have begun to withdraw from Iraq by 2008 is not out of the question, nor is a scenario in which the recent “surge” in troops is seen as a success. Each of these would significantly affect the presidential campaign.
Terrorism will probably continue to be a strong underlying issue in the campaign — Americans may not talk or even think about it much, but concern can be easily activated, particularly if there is another major terrorist event. The economy is almost always a factor in an election. Consumer views of the economy became more positive in January, but are much more negative in the latest June poll, possibly because of gas prices. Healthcare is a rising concern among Americans and has been a major issue in past election campaigns. Immigration will likely remain a campaign issue unless and until Congress passes legislation to address the subject of illegal immigration. Immigration ranks second behind the war in Iraq in Gallup’s latest update on the most important problem facing the nation.
So you are agreeing that the Dems had already won by 2007… “because of Iraq” (in your opinion)
I would add the fiasco that summer with risk parity hedge funds (see AQR), the much bigger mess at two Bear Stearns MBS hedge funds, and the general sense of an impending train crash in real estate flip markets all over the country.
I don’t know what “the TV experts” were saying was the most important election issue to them. Same people who thought Hilary was sure to get 80% of the vote (no president in the last 100 years ever got anything close to that).
The banking world was imploding by middle/late 2007, even if “the experts” on TV didn’t understand it.
The republicans ran a bench warmer. McCain put on a happy face, but I question whether he really believed he had any shot at winning. He might have beat Hillary (because she is a crook) — a fact the Dems knew and only strengthened Obama in primaries.
By 2007, baby Bush had pretty much locked in whomever won the democrat nomination. Iraq was definitely part of it, but not all of it.
Obama tilted the 2016 election HEAVILY in republican favor – Obamacare made a bad health system worse, the debt, and Obama inexplicably set racial relations back decades. Any chance the dems had ended when they had to choose between a criminal and a socialist.
In 2020, the dems are running 25 different socialists — so they already lost
Point was the economy wasn’t even on the radar in 2007 on the list of issues. Iraq did the Republican party in. Again I repeat, 15 months is a long time for more disasters to occur economically.
And Trump is also a socialist. What exactly would you call handing farmers a government bailout in lieu of tariffs which are killing their business ? Stop the pretending.
Home builders were freaking out 2nd half 2007 because the mortgage market was suddenly clamping up — that is what caused the two Bear Stearns hedge funds to collapse. By 2008, the MBS problem was so obvious that some idiot in Congress asked Bernanke to opine about the subprime contagion…
Farming in the US is completely government controlled and has been for decades. The government tells the farmers how much to plant, how many fields to keep fallow and what price they are allowed to sell their crops. USDA inspectors run rampant. Farm loans are government backed. Insecticides and GMO seeds are heavily regulated. The one and only segment of farming that isn’t government controlled is the weather.
Trump hasn’t made the farming situation any worse, nor any better. And as I have explained in dozens of comments on Mish Blog, the “trade war” between the US and China is a result of choices made before Xi or Trump came to power. Both men have to play the hand they were dealt.
The GSE factories of China have run out of consumers of last resort in the USA — that is why there is a trade war. Nothing Trump or Xi can do about it
Why does a “capitalist” whine about interest rates set by a central planning committee? I’m not sure Trump grasps the desperate debt situation the USA is in. But Trump spent his whole life bribing NYC officials to get building approvals, so Trump isn’t a free market guy and never was.
Trump grasps the debt situation. Lol.
Good luck avoiding a recession. Its baked into the cake
Everyone thinks they can predict recessions and booms.
Even if there was a recession, socialists will make it worse – and that’s all the democrats have.
Even the Republicans are socialists. They just pick and choose winners and make it look like the system works. We know it doesn’t because of the things like prices not falling. We have a choice of socialism for the few vs socialism for all. If Republicans were smart they would institute some reforms to keep the masses at bay. They haven’t so we will get the worst of both worlds and chaos.
yeah, unfortunately that is true. Its a big reason why Trump defeated the clown car full of republicans
Oh,@Taunton is the moron who thinks institutions buy negative yielding debt with their cash to get collateral, when that cash earns zero (which is more than negative anything) and cash would be the best collateral of all.
Not the sharpest tool in the shed this@Taunton guy
As much as you focus on foreign economies, one would think you would NOT be so US-centric. Could you ever imagine that it’s global capital seeking a safe place to park (due to govt oppression) that’s the driver? Just as during the Great Depression, it was the demand for US Dollars by foreign capital that drove the dollar higher, causing deflation. Just wait until the sovereign defaults start cascading … but I’m sure you will be blaming Trump’s tariff’s.
Very usefull info. What causes the yield curve to go back up sharpely. I think in another story you said that was the real trigger for recession.
Also what happens if teh yield curve stays negative for years ? (can it)?
Yield curve will steepen when Federal Reserve starts slashing Federal Funds Rate. Historically, when FR starts cutting US near onset of recession … or already in one.
If they don’t cut soon, the 30Y may invert with the 1M.
ok that makes sense, thank you
Interesting: https://www.youtube.com/watch?v=YKpQxoJaxF4
smart money getting out of stock
Here we go… NIRP and then watch them go cashless so that everybody is trapped into bail-ins.
Its the Miami condo market circa 2005-06. Its a sure thing! You can’t lose! Buy everything on spec, don’t worry about the long term cost because you are going to flip the condo to another sucker before construction is completed.
Today, we have a government running trillion dollar deficits as far as the eye can see. Debt way above their eyeballs. Yet there are condo flippers who think they can buy bonds from a derelict government and it will all work out. Its a sure thing! Bernanke assures us that the contagion in the Treasury market is well contained.
This time will not be different.
Good post.
Yeah, it’s getting a bit dark out there
“Interestingly, the record low 30-year long bond yield was on July 8, 2016 shortly after the UK voted for Brexit (June 23, 2016).”
I musta missed that one. I do remember 2.19% not so many years ago and wanting to kick myself for not selling my TLT when it reversed.
Didn’t Lacy Hunt (and Mish) say we would have one more “Last Hurrah” in the Treasury market before it all, inevitably goes to hell? Well, this may be it.
Lacy Hunt is 77 years old. Its not a sure thing he will still be of this world when the current 10yr note matures (maybe / maybe not). Highly unlikely he will be around when “WE” get the bill for the current 30yr.
Lots of geriatric so-called “economists” wanting to spend money now and stick someone else with the bill later.
If one is buying the 30yr with the belief that you can sell it to another sucker in a few years, that is speculating not investing.
If anyone thinks the 30yr bond will return at maturity the same purchasing power as the money has today (even before taxes never mind after taxes) — then just go outside and set all your money on fire.
Hunt is a speculator and plans to find a bigger sucker to take his bonds, knowing full well they are not money good. All the other speculators have the same plan. What happens when they all rush the fire exit at the same time?
Hunt always leaves that part out of his analysis
Lacy Hunt one of the very few who understand what – and will – happen.
Disinflation/Deflation at hand. 2% on the 30 yr treasury ain’t bad considering $15 trillion of negative yield bonds globally.
For years, I’ve thought 30yr yield would hit 1%. Moved that 0.5%. Negative yield would not surprise me in the lest.
Lacy Hunt thinks there is deflation, which tells me he hasn’t set foot in an actual store (or paid college tuition or paid health care costs) in a very very long time.
Go ahead and give him your money. Just don’t whine at everyone else when it turns out that bonds yielding below CPI are a dumb idea.
I know, you think you are smarter than everybody and you are going to unload your worthless spec condo just before the bubble pops. Thankfully, there are still suckers like you to keep Goldman Sachs in profits
1) In a world of yields sinking to negative, all there is left is speculation — or gold qua storage (not investment). 2) Treasuries are essentially large-denominated USD. If it is foolish to be in Treasuries because eventually the US gov and USD will blow up in a world-wide monetary crisis, what do you propose IS an investment and not speculation? Bitcoin? Toilet paper?
Not true@bradw2k … You will lose your principal eventually (probably not that far off). You will lose income immediately. Yields below CPI (even before you pay taxes) guarantees an immediate loss.
Your immediate return is roughly the yield * (1-0.25) minus CPI yoy — I am estimating federal taxes of around 25%.
Later on, you will get back principal that is worth a lot less than what you gave them.
Thats OK!!! Every extra dollar these “investors” give the government is one less dollar the government will try to weasel out of everyone else. The government needs cannon fodder for wars, and it needs suckers willing to sacrifice their standard of living so that government officials can live high and mighty. Exploiters cannot exist without victims to exploit.
PS – I know you were joking, but don’t knock toilet paper. Venezuelans would love to have such a luxury
Print baby print lol……Federal govt is danger close to collapse/default…..think it can’t happen?Printing tens of trillions to buy a few more years won’t work,not this time,which means the fed will go full on banana republic and surely launch (overt) massive (biblical)levels of fresh money creation…..why……because they’re outta options and they know it!
It looks grim.