30-Year Bond Yield Smashes Through Record Low
The 30-year long bond yield crashed to 2.024% this morning and is now just a tad higher.
The previous record low 30-year long bond yield of 2.10% was on July 8, 2016 shortly after the UK voted for Brexit (June 23, 2016).
Long Bond Yield Down 51 Basis Points Since July 31
On July 31, Fed Chair Jerome Powell made a speech he is going to regret. After the FOMC decision Powell called the rate cut a “Mid-Cycle” Adjustment.
I mocked the call then and did so again on August 6 when St. Louis Fed President James Bullard, a dove, Pimped the “Mid-Cycle Adjustment” Thesis.
Amusingly, Bullard professed “The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far.”
Earlier today, ZeroHedge commented that the 2s10s Spread inverted, but if so, it was fleeting. I think there is too much emphasis on that spread given the 30-Year to FF spread is now inverted and the 5-year FF spread is 63 basis points inverted.
Recession Fears
Recession fears have surfaced again.
As of 12:20 PM, S&P futures are down 86 points (3.0%), the Nasdaq is down 236 points (3.0%), and the Dow is down 721 points (2.7%).
One Day Wonder
Yesterday, Trump delayed Tariffs and the stock market went on a huge rally.
In Trump Chickens Out, Delays Trade War Tariffs to Save Holiday Season I commented:
Stock Market Reaction
The Dow is up 400 points (1.6%) with the S&P 500 up 50 points (1.8%) and Nasdaq up 47 points (2.2%).
Bond Market Reaction
The bond market reaction is interesting. The 5-year yield is up 7 basis points.
The 10-year yield is up 4 basis points and the 30-year long bond is up a just 1 basis point, a mere 4 basis points from a new record low yield.
Trust the long bond.
Long Bond Screaming Recession
That one-day wonder was even faster than I expected.
Here’s the message: Recession.
Meanwhile, note that a Global Manufacturing Recession has started and Trump’s tariff policy made matters much worse.
Note that the normal Lead Time Between Manufacturing Recessions and Full Recessions is zero quarters.
A recession may have started already.
Mike “Mish” Shedlock
Recession? How about a big bubble pop deflationary depression? I am about to refinance at a much lower interest rate. Nuts is I bought it about a year ago. Bubble.
If the 30Y yield drops below the 1M yield, does everyone get a taco?
Looks like the generals fighting the last war have worked themselves into a total frenzy over the Fed’s yield curve manipulation.
Powell made a HUGE mistake placating Trump on short term rates. He should have told Trump to focus on draining the swamp and let the financial system finish normalizing.
Zombie companies would die, but they will anyway. Tighter Treasury rates would constrain Congressional spending, the swamp would have less bribe money to spread around. Main Street would have been better off for it.
But Powell committed an unforced error. Far from the first the Fed has committed. Time for US citizens to end our dependence on central planners before the central planners “Argentina” the whole US economy.
I meant to type YUGE mistake, but spell check isn’t up on the various Trumpisms
Sad! If you studied Trumpisms, you’d become one bad hombre. Your posts would be tremendous and resonate bigly, believe me. Let me tell you, you’d have the best words. Even the blacks, the gays, and the Muslims would agree, and if they didn’t they’d get schlonged, mark my words.
There hasn’t been much movement, if any, in mortgage rates.
What is really scary is that the greatest economy in the world became completely dependent on central planners and government meddling
2yr and 10 yr @ parity (atm)
If someone could cough we might get an inversion.
The recession of 2008-2009 never really ended. It just depends on what formula one wants to use to calculate economic activity/data. The American economy has been contracting and deflating for years now. What is so scary is the Federal Reserve is now out of ammunition. It has no more cards to play to prevent wholesale deflation. Deflation has officially arrived and it will here for many years to come. I bailed out of the stock market last year. Happy I did.
Deflation in the form of bonds negative yielding/defaulting and making credit disappear?
That is a sure sign of deflation. Every single indicator is looking terrible now. I honestly don’t know where to put cash right now except precious metals. Stocks and bonds are out of favor for who knows how long.
David Rosenberg
@EconguyRosie
Definition of a low quality GDP report was front and center with the release of today’s NY Fed credit report — over 80% of the household spending gain was financed by debt.
“over 80% of the household spending gain was financed by debt”
yup, that is the problem. No Fed Funds rate, higher or lower, is going to fix this. The global consumer of last resort is exhausted.
“Yesterday, Trump delayed Tariffs and the stock market went on a huge rally.”
He still plans to implement a 10% tariff on $100B worth of imports on 9/1. I’d call that a partial “chicken out” but still very negative for the consumer. Look at the list Most apparel is still included as are many other key items.
You only see this kind of crazy day-to-day volatility in Bear Markets.
In a real bear market, you don’t see any activity at all.
I posted Monday that John Mauldin had a post on LinkedIn of a Morgan Stanley chart showing the QE-ajdusted yield curve actually went inverted in December and has remained so since. I’ve been skeptical of the yield curve this cycle more than previous cycles. To me if you see layoffs and unemployment spike higher soon, then you will know corporations feel there is an economic slowdown. Mass layoffs always happen quickly when the economy is in recession.
What will you say if some industries (the ones with the most Fed created zombies) having mass layoffs, while other sectors are doing well?
I think that is what we are seeing today, and will continue to see for some time to come. Its a two headed economy, which makes every single TV prognostication about “THE” economy or “THE” market rather meaningless. Its not a normal distribution, so averages are meaningless.
Is the healthy part of the economy bigger or smaller than the Bernanke zombies? IMHO that varies from quarter to quarter (if not month to month) which is why I ignore Mish’s breathless sky-fall prognostications each quarter. I just started commenting while I am on “gardening leave”, but I’ve watched his blog for a long time. Mish used to connect the dots and highlight big macro trends before he retired
Wont happen. The economy is connected like never before. There is always a spillover effect. This is actually why recessions happen and you dont see growth between 0 and 1% for very long. The rising tide lifts all boats. The falling tide makes all boats fall.
You’ve been watching. I will give you that. Mish hasnt been calling for a recession until recently. And your understanding of the economy is a little off. Recessions happen because all parts of the economy are connected.
Mish has been calling for a recession for months. Not predicting a recession, trying to conjure one up do to his outright hatred of Trump.
Trump is human, with both strengths and weaknesses, but Mish is from Chicago and he must vote democrat 100% of the time or his neighbors won’t listen to his rants
Hilarious. I believe Mish voted for Trump and has said he would likely do so again. Clearly you’ve not been paying close enough attention.
Reading his posts I believe he was calling for a recession sometime in 2019 but as any reader worth his salt knows recessions are only shown to happen after they have started.
By the way, there is no way of you proving you’ve even been reading anything here. You’ve been a member for a New York minute.
Member Since Aug 2019
Yield curve inversion doesn’t mean anything when its caused by the Fed manipulating longer maturities.
Lots of people warned dim-wit Bernanke that his banana republic policies would cause price discovery problems and eventually shut down the Treasury market. But Bernanke is an idiot “professor” who would spout endless equations that proved he didn’t know what he was doing.
Japan saw its JGB market collapse in the wake of QE/ZIRP — even though BoJ called it something else. Bernanke did the same stupid policy as the BoJ — the Fed lost control of both the Treasury market AND the money supply, and just as in Japan banks are going to pay big time.
That is what a failed Treasury market looks like. Its a disaster for big banks.
Mish is a general fighting the last war, constantly parroting what the yield curve would be telling us IF it was still market priced. It isn’t
Oh, so you are saying it is different THIS time?
Good luck with that.
Mish nailed it.
I am saying its the same. I am saying Mish is looking at a rear view mirror of what the Treasury market used to be.
When the bonds are market priced, term structure matters.
When the whole country operates like a banana republic, default matters
“When the bonds are market priced,”
…
They are. Bonds sense Something Wicked Come This Way (deflation).
QE ended years ago.
The Fed’s balance sheet has not been normalized, nor have interest rates. QE/ZIRP are in full effect.
As for the bond market, US bond desks have all read about their colleagues in Japan. Once JGBs were a busy market with tens of thousands of trades every day. Now whole weeks go by without a single trade. Trading floors are empty — one trader and one salesman is more than enough to handle all order flows in the entire JGB market. Japan doesn’t need multiple JGB dealers, and they certainly don’t need multiple traders or bond salesman.
US bond trading desks see the writing on the wall, and are depressed. The Treasury market is dead, and they know it.
It doesn’t matter how many comments you post, there is no US Treasury market — and if you actually traded Treasuries you would know this already.
Oh, so you are back to It’s Different this time.
Got it.
You have really poor reading comprehension skills. I have wasted too much time replying to you already.
So far Lost Anchor is correct and Mish us WRONG there is no recession because services are not faltering and their are a solid majority of the economy. But this could change. For more see Wolf Street.
Dow down 600. Time for a Tweet. Wonder what it will be this time? I’m beginning to realize that the “Trump Put and the Fed Put” may be out of belief until after Sept.
There is no recession. This is being played by the Anti Trump agenda and the money manipulators that is causing high volatility and will continue.
Volatility caused by anti-Trumpers?
No recession possible with Trump leading ?
Kudlow “The American economy is very strong. Theirs is not.”
Not quite “Permanently high plateau”, but close.
My tell for when things about to get VERY interesting – Larry Kudlow throwing in the towel.
FOMC proves that it has zero clue on interest rates. Why bother?