Search
Economics
Politics

Ring! Ring! Goes the Long Bond Bell, Are You Listening?

•

•

11 comments on Ring! Ring! Goes the Long Bond Bell, Are You Listening?

•

The long bond is ringing a bell and the message is not inflation.

Yield on the 30-year long bond fell 13 basis points today after holding pat yesterday when other yields rose across the board.

US Treasury Spreads

Treasury spreads peaked around February 22. The 30-year long bond yield peaked on March 18 at 2.45%.

Many thought the long bond yield was headed up, up, and away never to dip below 2.0% again. 

One more move like today and we will be there tomorrow, but a pause after this move seems more likely.

 US Treasury Yields Monthly Average 

Asymmetric Policy

The Fed has an overriding tendency to hold rates too low too long. the slope and amplitude of interest rate moves tends to steeper and deeper down than up.

Dot Plot of Expected Hikes by Fed Members

By the Time

The Fed has penciled in two rate hikes for 2023.  for discussion, please see Fed Will Foolishly Continue QE Purchases in Search of Higher Inflation

By the time they get around to hiking, they will instead be cutting.

Meanwhile, the way these dunderheads think, there will soon be some discussion about the need to hike just so they have “room to cut”.

I rather doubt we get there. 

There is one slight problem. At 0% the Fed has no room to cut. 

Ring! Ring! Goes the Bell

Charts That Should Scare the Pants Off the Fed (And Probably Do)

Despite massive fiscal and monetary stimulus there is no demand by bank customers for more borrowing. I discussed that setup in Charts That Should Scare the Pants Off the Fed (And Probably Do)

Add this huge flattening of the yield curve and the decline in the long bond yield  to the list of huge Fed worries.

Subscribe!

Like these reports? I hope so, and if you do, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Subscribe
Notify of
guest

11 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
Roadrunner12
Roadrunner12
2 years ago

“By the time they get around to hiking, they will instead be cutting…………………

There is one slight problem. At 0% the Fed has no room to cut. “
After the last recession, the FED left rates 0 bound for  7 years  from Nov 2008-2015 and only raised them slightly in 2016. They then raised them from 0.5% Dec 2016 to 2.4% Mar 2019 and that was too much to handle.
Now debt has only magnified since then. Somehow I believe the game plan will repeat with no raises over the next 8 years and longer as any interest rate increase causes debt servicing costs to become major headwinds for consumer debt, corporate debt and government debt. We also have roughly 12,000 Americans and 1000 Canadians retiring every single day until 2030. Health care and pension costs to rise significantly. Demographics certainly to play a role as the boomers retire.
Debt only increases every single year making rate hikes increasingly difficult to do as time goes on. For my 2 cents, they should let interest rates rise and yes this is gonna cause a lot of hurt but they will do as they have done and keep interest rates low and look for more creative FED policies to delay the reckoning.
If they basically did not raise rates for 8 years after the last recession, why expect anything different?
0
Reply
Eddie_T
Eddie_T
2 years ago
Metals are still getting sold on the NYMEX open this morning. The bottom might not be in. I am fairly encouraged that sliver has held up a lot better than gold. My trade is not badly in the red as of yet.
My view is that TIMING  and technical analysis both point to a reversal in metals. Bu the story this year has been dollar strength equals gold weakness. 
We know that a weak dollar is not the only thing that can send buyers into gold and silver,….so I am looking for possible catalysts that might change the market. The link below gives a possible game changer, especially for silver. Peru is the second largest silver producer in the world and has the world’s largest silver reserves. FYI, fwiw.
0
Reply
Cocoa
Cocoa
2 years ago
NIRP is coming. The economy is dead and needs jumpstarts to keep it going for a few months. The FED is talking nonsense…they know where this is going. Deep Negative.
0
Reply
anoop
anoop
2 years ago
ring ring.  the fed broke the bell.  the bell rings at the wrong time for the wrong reasons.
0
Reply
CzarChasm Reigns
CzarChasm Reigns
2 years ago
The US Treasury Yields Monthly Averages Chart shows convergence @ 6 in 2000, @ 5 in 2007, and around 3 in 2019…
If the trend continues, it would seem to suggest the next convergence, still years out, should center on zero.
Primary assumption/variable: FEDhead stupidity continues unabated.
0
Reply
Scooot
Scooot
2 years ago
I think the long end has reacted to potential hikes down the line putting the breaks on inflation combined with QE continuing for the time being.
0
Reply
whirlaway
whirlaway
2 years ago
“By the time they get around to hiking, they will instead be cutting.”
Well before that end-2023 target date, they would have done enough QE to take the balance sheet beyond 10T.
0
Reply
FromBrussels2
FromBrussels2
2 years ago
….you didn’ t ask your, by now, notorious question :  Got gold ?   Down 4% today, last time I checked….Buying opportunity?
0
Reply
Karlmarx
Karlmarx
2 years ago
Inflation spiked prior to the 2008 recession and the long bond continued its dive toward zero through that as well.  
Honestly, how many bond traders were even alive in the 1970s to actually experience inflation?  Not sure they would see it until it bit them. 
Look at the Employment Cost Index.  Didn’t go down at all during the government-imposed shutdowns, so the evidence that the inflationary spike is a statistical anomaly is not there.
0
Reply
Eddie_T
Eddie_T
2 years ago
I never looked for it to break above the long term trend line as long as the Fed still has some control over interest rates….but this is an earlier downturn than I was expecting.
0
Reply
Roadrunner12
Roadrunner12
2 years ago
Needless to say, the FEDs MO has been to raise rates after recessions and lower them during recessions. However since 1980, the trend has been lower highs and lower lows. Now at 0.25%, the fed cant even raise them in a debt plagued world. 
Price discovery is now non-existent with the everything dependent on the FED. Is there anything out there that someone considers fairly priced? Even the thought of the FED initiating tapering has the potential to mess up housing and stock markets. 
Tapering and raising rates are necessary to a return to normalization but that is going to come with a lot of hurt and how likely is that scenario.  If they cant raise rates now, it nots going to get any easier in the future. Every year that passes by, the debt only increases and as well demographics and unfunded liabilities come into play. Interesting posts with some reference to interest rate increases:
0
Reply

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.