Sunday Evening Futures
- Equities Down
- Gold Up
- Treasury Yields Down
As of 1:36 AM Central on Monday morning, the 30-year long bond is a record low 1.942%.
It’s now inverted 17.8 basis points with the Fed Funds rate.
The 5-year note is a whopping 78.4 basis points inverted.
Few seem to believe it, but the yield curve is now screaming recession.
Mike “Mish” Shedlock
What we are seeing is a flight to safety due to the increasing value of the dollar on world markets, due to the Fed’s interest rate policy and the China trade war.
This is extremely dangerous. I’ve read that around 2/3 of all debt outside the Eurozone is denominated in US dollars. As the value of the dollar increases, debt payments in emerging markets get more difficult. That causes a self-reinforcing spiral of decreased liquidity for EMs, more rush to safety, higher increases in the dollar, etc…
So Trump needs to tamp down the rhetoric and the Fed needs to cut interest rates. Otherwise we could see a new debt crisis in the 3rd world and find out how many first world banks are on the hood for those debts. And China being counted as an EM, means Chinese debts could blow up the world.
Keep the party going!
It seems that much of the interest rate decrease and inversion is due to increased foreign purchases of treasury notes and bonds. My search for data to prove this has been limited, but I see that major foreign holdings of US govt securities has increased $400 billion from June 2018 – 2019. I’ve got to believe that in spite of all the US economic turmoil with China and the dragged-out coming recession that our paper, which carries a positive interest rate, is not attractive to offshore buyers.
Washington Post ran a story a few days ago on an internal White House report earlier this month showing the economy slowing (but no recession) before election. Probably explains DJT floating balloon on tax cut to payroll and capital gains.
In the next few months put me down for:
Conditions deteriorated quicker and sharper than expected.
Markets turn faster than the crowd does, by definition. Lots of people saying things aren’t really so risky here — but look at the market flight to safely. … It’s clear that the crowd is going to be saying that the next recession is at least a year away, even when they are standing waist-deep in it.
Trump–“it’s all OK now”
China–“WTF you’re talking about Willis?
He pulls the puppet strings again this morning. “Trade talks to resume” and joy is spread on wall street and throughout the land.
Gold down, the USD up and stocks up. I could have predicted that Trump would say something like this after Friday. Of course it’s nonsense but they all buy it. The Trump Show is getting to be so predictable.
There is a huge arbitrage opportunity due to the inverted yield curve: Borrow for 5 years and lend for 3 months. When the yield curve normalizes, pay back the money borrowed for 5 years early.