My guess is bond yields are heading much lower between now and September 11. 
30-Year Long Bond Technical Position
Technically speaking, the long bond yield is right on support. Typically this is a spot where one would expect yields to bounce.
However, there have been four bounces off this level since late last year. I expect support to crumble in the wake of deteriorating economic data.
10-Year US Treasury Note Yield
10-year US Treasury Note Technical Position
The technical pattens of the 10-year Treasury note is the same as the 30-year long bond. The only difference is yields and support levels are lower on the 10-year note.
Fundamentally Speaking
Fundamentally, support levels will break sooner or later and I expect sooner, as in tomorrow.
A stronger reaction, and one I am more confident of, will happen with the next CPI release on September 11.
I anticipate a 50-basis point (0.5 percentage point) move lower on both within the next month or so.
Weakening Data Everywhere
September 2: In Honor of Labor Day, Let’s Review BLS Job Revisions
September 3: Construction Spending Growth Slows in May, Stops in June, Negative in July
September 5: Fed Beige Book Shows Flat or Declining Economy in 9 of 12 Fed Districts
September 5: Small Businesses Reducing Workers for the Last Four Months
Tomorrow the issues its monthly jobs reports.
In fourteen of the last 20 months the revisions have been negative. And if the report is good, there is no particular reason to believe it.
For discussion, please see A Breakdown, by Sector, of the Negative 818,000 BLS Job Revisions.
Expect more job weakness then a very rate cut friendly CPI report next week.
“Dang, wish you’d have written this yesterday.”
Yes, apologies offered. I almost said that in my post.
This was not very timely.
However, I have been making similar statements for a while.
Well, I could be wrong.
The Bloomberg Econoday consensus is for the unemployment rate to drop and jobs to be +160,000.
I will take the over on unemployment rate and under on Jobs.
I am much more confident on what happens on the next CPI report.
I expect a negative reading for the month and will write up why no later than Monday AM.
Report Wednesday,
Very interested to read your thoughts on that, and I appreciate your efforts!
I don’t think you need to apologize.
You make long term trend analysis on the economy – and never shrink from favoring gold – anyone trading daily on your offerings seems to be missing the point and in terms of bond trends during this period, your post are very helpful.
Thanks for doing this thorough analysis.
If 10-year Treasury yields fall to a 2.75 percent support, effective rates will be negative, based on current BLS highly selective core inflation rate of 2.9 percent. Shelter inflation at 5.1 percent, 10YT rates of 3.7 percent are already NIRP, and will encourage homeowners and investors to hold their properties, continuing the shortage, inflating housing prices and rents, as shown on Mish’s charts on the Unaffordable American Dream.
The “CIA” will keep most of the numbers buoyant for the next couple of months to try to keep kamala in the game
As for yields in the longer term, they are going from around 1.5% in the next 18 months to 20% in the next 5 year or so
Much can change of course, and might even depend on the theft or not of the election, though Lacy Hunt says it really doesnt matter
I’m not about to agree or disagree at this point. Rather to rethink….
If you were going to lend $10K to the US government for the next 30 years, what would you want to receive as interest?
You should be happy with about 4% according to the chart. Think about that $400 per year interest for a moment, and what you know about the US, its ongoing budget deficits, and what might transpire in the next 30 years.
Now, reflect on the short term rates. The 3-month is about 5%, and the 12-month at 4.1%. Clearly, expectations are short-term problem, the Fed will fix it, and all is good on the economic front.
At this point I’m LMAO.
And your other choices for that 10K
1) Under the mattress earning nothing while losing to inflation
2) Risked in the stock market where you could lose money
3) Used to purchase a productive asset (real estate, small business etc) that you personally manage / work at but could ultimately fail and lose money and is relatively ill liquid
4) In Gold/Crypto or other physical asset (art, sports cards, antique cars etc) that you hope appreciates faster than inflation that could also lose money or fail to keep up with inflation or be ill liquid depending on what asset you bought
Where are you putting that 10K?
Primarily yellow and heavy (not cheese) .in 3 different countries–for obvious reasons. I’m happy with what I have. I don’t brag,
My point is the risk-return tradeoff that rationally allocates economic assets is now irrational at this point. The Fed acts as insurer to the downside, while enabling excess profits for the upside. The resulting wealth transfer is the largest theft in human history, although like any ‘perfect crime’ it won’t be noticed until the debt becomes due.
A drop in rates will make it cheaper for the government to borrow trillions of dollars more, regardless who wins the White House.
Lower rates, higher wages, higher tax collection, while shrinking the gov visceral belly fat ==> will enable the US gov to cut debt, if they are fully committed to cutting debt, within a short time.
1D SPY : L1 support : Oct 2022 to Oct 2023 lows. Resistance from July 2023 high. Spy got support from the resistance line. If breached L2: Oct 2023 to Apr 2024 lows. Resistance from Mar 2024 high. Option #1 : The big whales are shaking out the weak hands in order to surf on L2 channel. Option #2 : The big guys are more scared than Warren Buffet bc we are going under Apr low and 2022 high, possibly to L1 support or below. In order to go to hell SPY need an UT. No, it can go straight down.
I do not share this info about myself often, but here goes:
I am a professional trader based upon Chart rules that I developed over 30 years of controlling my family office money.
Thus, not bragging, but one of the many rules that played out accurately, over time, is shared below:
SUPPORT MUST BECOME (or revert to) Resistance.
Thus, breaking SUPPORT is only relevant if PRICE BOUNCES BACK UP INTO THAT VALUE and falls again.
Period. This rule made more sense to me once I was taught by another pro over 25 years ago. It has proven to be trust-worthy.
Yes. SPY 1W pricked L1 on Fri 11AM. 5H to go.
13-week T bill yield now below 5% and dropping. 5.32% risk-free return – sweetness, no more.
I am short long dated treasuries as I can’t believe anyone would loan money to a business borrowing half its income and no plan to reverse that.
The Chinese are selling US Treasuries.
Possibly because they HAVE to do it because of global liquidity issues. I would say that this IS the reason.
Agree!!! I am too.
Dang, wish you’d have written this yesterday.
$35 trillion in debt at the Federal level. $330 trillion worldwide. In our worldwide debt trap, how can you possibly service all this debt with interest rates at anything other than zero? It cant be done any other way.
ZIRP exacerbates leverage which inflates assets; then flows to prices.
Been pairing back equities into MMF … pay on gains now before rate increase.
Maybe move MMF into more TIPS …Nominal bonds do not preserve value.
Not thrilled with ~1.6% real on 10 year TIP….but, real-is-real (except see below).
Usual signoff: CPI is Rigged; End the Fed.
Inflation
The Weimar solution.
Maybe ‘new math’ would help the situation
Increased genuine production would help.
Debt also becomes more serviceable if the govt share of economy is reduced and private sector increased. Cutting gov spending stops “digging the hole deeper”, then private sector growth rebuilds the tax base. Shift 10% of workforce off gov payrolls and into new factories, and shift another 5% of adult workforce to higher production by putting teens and college kids back into entry workforce as in 1979s-80s. Increasing the production output will lower prices while also generating the additional demand needed to employ all of the above.
Any chance you could also make the sun a little cooler?
It will happen when the $ becomes less than toilet paper.. NO country wants it. NO person wants it.
LOL I’m a physical scientist by training, so the short answer is yes …
but the next answer is that you really don’t want the sun to be cooler, if you think it through.
Debt also becomes more serviceable if the govt share of economy is reduced and private sector increased.
This was essentially done after the recession following WW1 and the concurrent pandemic. The fed did nothing meaningful, and the federal government cut the spend by about 20 to 25%. The roaring 20’s commenced in roughly a year and a half. The opposite followed the 1929 collapse, government tried to be the solution, and we ended up with the depression and WW2.
Interesting thought. I was thinking about the post-WW2 era and how we got out from the WW2 debt hole. But I expect post WW1 was similar at least until they failed to stop the bubble.
Finally, someone gets it. Government creates about 79 cents for each dollar spent. The private sector creates about $1.29 for each dollar. Adjusting for the relative sizes, you can think of the difference is growth in the economy.
Govt = overpaid and underworked, and grossly ineffective. Smaller is better. ,
learn from the most ancient civilization, the people of Ur. Reset the debt. zero it out. also restructure everything, but certainly zeroing out the debt is critical.
Who, in their right/rational mind would ever lend at zero%?
Answer: someone who does not have a brain, or who has unlimited access to funds, at zero cost. aka FED-Treasury. In other words, everything is inflated endlessly
Everyone will gladly lend no-risk at 0% in a debt-deflation credit panic situation, when the alternative is losing 5-100%. 2008. 1930.
Japan’s shot across the bow a month ago was a near-miss credit panic. That have been a one-off, but it may also have been a harbinger of trouble ahead…. And note that Japan hasn’t recovered from that episode …
Obviously debt deflations do not happen when central banks are willing & able to inflate and market participants are willing to speculate. But those conditions do not prevail “always and everywhere”.
The US has a systemic problem–it lives beyond its means, and creates endless debt to do it. With that mentality, there is a definitive risk to the lender. You presume the borrower will never ‘default’. However, default has happened before, apart from the obvious examples like Germany. Most Russians remember when their currency was worthless. The cause was not a lot different to the US currently.
Also, the longer the duration the bigger the hit when yields start going up.Which they will do when debt reaches critical mass. No one knows what that is. Frankly, I’d be surprised when there is a 401k requirement that x% must be in Treasuries (for your safety, of course)
I was not around in 1930, but 2007-9 was a banner year for those who understood where not to be invested. Economic crashes are great buying opportunities if you preserve wealth during the decline. If the wealth is tied up in long-term securities, there might be a problem. Ergo, where to stash wealth when nearing the turning point?
As for Japan, one has to laugh. You set up what is essentially a complex arbitrage of currency exchange rates and interest rate differentials with duration differences and wonder why SHTF when people take advantage. But yes, it was a major harbinger of trouble globally. Speculation really does have a downside.
Low hanging fruit always fall first. In 2008 it was crap mortgages being sliced and diced into tranches etc, with clowns thinking a ‘diversified portfolio’ of crap would somehow eliminate the risk. This was the big lie.