Treasury Curve Details
- There is now a solid wall of inversions. Every Treasury Note and bill from three-year down is inverted with the next lower duration except for the Fed Funds Rate.
- The 10-year yield is inverted with 6-month and shorter durations.
- The 30-year long bond dipped below 2.0% for the fourth time and is just 6 basis points from a record low.
The same thing happened on January 31.
At that time I discussed My Conversation With the 30-Year Long Bond.
My Conversation With Mr. Bond
Hello Mr. Bond. You just cannot seem to stay away from 2.0%.
We missed you. Welcome back. Will this be a longer visit? Are you calling for a recession?
Unfortunately, Mr. Bond did not answer. He just winked.
Today, I asked Mr. Bond the same questions.
Once again, he did not answer directly.
Instead, he just shrugged his shoulders and responded with three questions of his own:
- Did you notice Half the Population of China, 760 Million, Now Locked Down?
- Is Japan Headed for Recession, or In Recession?
- Do you really believe the US can avoid a recession?
With that, Mr. Bond said: I have to run, but here’s another question for you to think about: If not now, when?
On his way out the door I thought I heard him singing Do It To Me One More Time by Captain and Tennille, but it might have been Tonight’s the Night.
Mike “Mish” Shedlock
THE INVERTED YIELD CURVE IS NO LONGER AN IDICATION OF A FUTURE RECESSION. IT IS THE RESULT OF CAPITAL INFLOWS, DUE TO THE NEGATIVE RATES IN EUROPE AND JAPAN. LOOK AT THE EURO. All one needs to DO is answer the question: what happens to the $12 trillion in negative-yielding debt (50% US federal debt) when rates uptick even a little? It will be a bloodbath in the financial markets, which will send capital fleeing into the dollar and US equities. If you want to know why markets keep rising – CAPITAL FLOWS TRUMP CARONAVIRUS!
All CB’s are trapped, and the Fed has even lost control of the short end, as the REPO crisis is proving. The last auction saw the supply of $30 billion exceeded with a demand of $53 billion. The banks still don’t trust each other because of the situation in Europe, and with the UK’s departure, the hole in the EU budget means everyone will be expected pony up extra money they do not have, but it does not mean the career politicians will not try to extract more money for their citizens, which means more civil unrest and a declining economy for the rest of the year (minimum).
No matter how much Trump screams or the Fed pretends to be in control, they will not be able to stop the dollar from rising, which will blow up all the foreign entities holding way too much dollar-based debts. The Fed will likely respond by increasing rates to avoid being labeled a serial bubble blower, which will only make the situation worse. This will force another Bretton Woods style meeting to crush the dollar, which will start the cost-push inflation, due to rising commodity prices (2022-2024).
FYI – ARMSTONG TOLD US THIS WAS COMING YEARS AGO.
This blog never fails to accouter to Apocalyptic forecasts. Reminds of when that Hedgeye Blog flogged the stock, KMI, and said to get out before the company went bankrupt. Didn’t happen.
didnt they end up dropping 75% and have never recovered since?
I’m beginning to think I may understand why Guy Clark didn’t like his landlord:
Could be, he was Mr. Bond.
The old bond trader forgot one other very important point. Credit demand has been to keep zombie Corp alive. No real capex demand.
Fed can push on a string all it wants but it won’t help demand much.
The way this old bond trader who started trading bonds on Wall St in 1981 and still trades for himself sees it new all time low yields. You have supply chains shredding with nonlinear second and third order
effects. You have Japan in recession,Germany and who knows China.
Latin America a disaster. Corona virus spreading ,believe the scientists, Weak retail sales, over leveraged corporations
collapsing shipping and intermodal volumes manufacturing in recession. What’s not to like?
Long Bond = Old Man River
Going to go where it wants (yield < 1%) in due time.
Seems the market is expecting QE to be a permanent part of our monetary policy. Not just in the US. All the major central banks.