US Treasury Yields Decline Across the Board
US treasuries rallied today and gold went along for the ride as expected.
- 30-Year Yield: -4.2 Basis Points
- 10-Year Yield: -4.8 Basis Points
- 5-Year Yield: -2.9 Basis Points
Gold and Silver Reacted Strongly
- Gold: +37.80, +2.25%
- Silver: +0.83, +3.29%
Small Speculators Pile Into Treasury Shorts, Is a Short Squeeze Coming?
Two days ago I asked Small Speculators Pile Into Treasury Shorts, Is a Short Squeeze Coming?
I offered this opinion: “I suspect a strong rally in bonds will soon wipe out the latecomers into these trades.”
Inflation Meme
Nearly everyone bought into the inflation meme. And as discussed in the above link, it was small speculators leading the way.
Gold had been struggling on the notion the Fed would have to hike sooner. In isolation, rising yields are generally not good for gold, but there are other factors.
In Congress there is already talk of more stimulus but I suspect that is dead on arrival.
It’s not that I don’t see inflation, it’s I don’t see a lot more of it as it is incorrectly measured.
Bubble Talk
The Fed blew bubbles and they will pop.
If there is a sustained stock market decline or economic weakness yields rate to plunge.
Moreover, everyone seems to have bought into the notion of Covid immunity and things soon getting completely back to normal. Even if so, it’s already priced in.
Technical and Economic Setup
So far, this is just a one-day reaction. If so, it does not mean much.
However, I suspect the rally in treasuries and gold just got started for technical reasons (short squeeze), and economic reasons (the reflation trade is way ahead of itself and bubbles will pop).
Three-Point Synopsis
- This economy is not as strong as widely believed
- Bubbles in equities and junk bonds will pop and that is deflationary
- Technical rally fueled by treasury shorts and gold bears
Mish
If you think things are crazy now, if the SLR requirements expire on march 31, it will get far crazier.
Do you know if the big banks hold unhedged Treasuries as part of their SLR requirements. Perhaps they’ve been hedging them in anticipation of the expiry in advance, and this is behind some of the recent upward shift in yields?
I don’t know, but it will certainly lessen the demand for treasuries, which would drive rates up. I have no doubt this explains some of the drop in treasuries, but how much is anyone’s guess.
Looks like gold is spiking up at the NY open….maybe gold has turned after all. We shall see. I’ll wait for confirmation, because I suspect a bull trap.
I’d accept a close above roughly 1725 as confirmation of a trend change.
The basis & co-basis of both Gold and Silver has been tightening for a while which is a growing sign of scarcity of the actual metal. Something else to throw into the mix.
Gold did close above 1725, barely. I suppose gold is now officially in an uptrend.
Long gold but write short term puts to collect premia while gold wobbles.
Own everything but dont sit on cash.
Gold moves with the dollar only in the very short term and sometimes not then. There is no magnitude, so at at particular dollar index value gold may have many widely different prices historically
The NASDAQ was up by more.
Gold and silver are for preppers.
…Algos can.. and maybe some ‘pundits’ too… yet personally I can t make head nor tail of the present situation. Nothing makes sense any longer, the present state of affairs has become a insane casino game with CBs playing croupier. Some wishful thinking fools are expecting the global vaccination campaign to work never seen before social economic miracles while circumstances were already precarious and unsustainable BEFORE covid! So all that is happening now is that more floors are being built on the already decrepit house of cards, only question remaining when and how it will fall apart… Hey but, don t forget to buy the dips…Tesla and Bitcoin, among others, must definitely be bargains ….
The Treasury Market is saying rates need to go up to fight inflation. That’s not going to happen any time soon, and the government’s going to keep flooding the market with new bonds. Under those circumstances I’d have thought that’s good for Gold. However, it would seem I’m wrong. – 🙂
With $4T in stimulus paying people to produce nothing I just can’t see how a supply and demand mismatch can be avoided. More dollars chasing fewer goods and services, inflation is coming.
Do not rule out a deflationary collapse led by equities and junk bonds. I expect that at some point.
Will the Fed step in to support junk bonds?
I would guarantee it – depending on the severity. I expect the Fed will have to revamp their emergency facilities by 2022 and they’ll never end once they do.
Also, the Fed only needs the approval of Janet Yellen to reauthorize emergency facilities, not Congress, and not Biden.
Maybe they weren’t producing much before , i.e. 4T went to the “service economy”… and everyone got served ?
Wake me when unemployment is low and labor rates are rising.
This is what happens when there is more demand than supply. Inflation. Nothing to do with labor market. https://publish.manheim.com/content/dam/consulting/ManheimUsedVehicleValueIndex-LineGraph.png
Gold and Silver mining stocks are just barely above 6 mo lows even with low debt, increasing income and CFO the last 5 quarters, many with PEs below 10.
I expect gold to do well over the medium term for the reasons you mentioned, but I sold the top this morning and am looking for more downside in the next several days.
This is because gold tested the 61.8 Fib retracement level of the last intermediate rally (some were drawing it at 1690)…..I had 1700 as an important level of support that I wanted to see hold…..Neither one of them held.
I think we test 1650….and maybe 1600. Gold will turn up of course. I was hoping it would happen last week, but that didn’t pan out.
If the dollar starts falling again, I’d be much more inclined to risk going long gold.
The Big move will occur once investors realize the economy is dependent on stimulus.
For now, the latest stimulus will provide a short lived boom – 3/6 months. I expect gold and silver will remain weak until rates begin to trend downwards. Once the next deflationary period begins it will spark the beginning of Stagflation as Congress continues trillions of spending and Fed implements YCC.
It has been dependent on stimulus for a long time, the difference being that now that stimulus is not channeled via market activity with gradual social spending increases, but more broadly to the population as a whole and at once. Putting aside political questions, it still means that now a large real share of economic activity is directly tied to and reliant on the state. In Spain (as an example) this new circumstance is being recognised, so for example there are headlines like “The state wants to take ownership of the economy after the pandemic ” (paywalled)
As everything returns more towards normal, I think we will find that all the furniture has been rearranged and that state will be in the middle of it all “helping a more dependent population to find their place”.