US Treasury Rates Hit Nine-Year Highs

But the yield spread collapses to lowest since early in the Financial Crisis. Even the Fed is worried.

Prices of US government bonds fell across the board on Friday, and their yields rose and set a number of nine-year highs, in some cases nine years to the day.

Many people have pointed at the Senate where the prospects of the tax cut are said to have “brightened” when the Senate approved a budget resolution. The tax cuts, if they make it, are said to lower government revenues by $1.5 trillion over 10 years. So maybe the bond market is starting to pay attention to government deficits and the national debt once again. But the bond market hasn’t paid attention in many, many years, and until the proof is in, I doubt it.

There are, however, other factors that predate Friday by many months. In fact, the moves in Treasury yields for maturities up to two years have been fairly consistent: yields have been surging.

On Friday, the three-month Treasury yield rose to 1.11%, the highest since the brief spike around July 25, when the debt ceiling issue hit a speed bump. At the time the thinking was that in late September – when these securities would mature and the government would have to come up with the money to redeem them – the government might not be able to come up with enough money due to the debt ceiling. But this scare passed, the debt ceiling was extended temporarily, and the trajectory of the three-month yield returned to normal. Except for this spike, the three-month yield, at 1.11%, is now at the highest level since October 20, 2008 (let’s remember that date, it keeps cropping up):

In 2013 through 2015, the 3-month yield bounced around at near zero, and actually hit 0% several times in October 2015, which was the low point. In December 2015, the Fed raised its target range for the federal funds rate for the first time since July 2006. By now, it has raised the target range three more times, and it will likely raise it again in December.



The one-year US Treasury yield rose to 1.43% on Friday, the highest since October 29, 2008. It never quite got to zero but fell as low as 0.1% in 2011 and 2014:

The two-year yield surged to 1.60% on Friday, the highest since October 20, 2008 – that date again. That was nine years ago to the day:

The two year yield is particularly significant in relationship to the 10-year yield: The difference between these two yields — the “spread” — has made its way onto the Fed announced worry list.

As the two year yield has surged since 2014, the 10-year yield has spent a lot of energy jumping up and then meandering lower, hitting 1.37% in August 2016, the lowest in the data series going back to the 1960s. The yield then spiked with the election, nearly doubling in a few months, reaching 2.62% in March this year, before swooning once again. But it has been rising recently and jumped 6 basis points on Friday to 2.39%:

This is where the Fed begins to worry: The spread between the two-year and the 10-year yields dropped to 0.75 percentage points on Thursday, the lowest since November 2007. At the time, the spread was widening after having been negative in late 2006 and early 2007 – due to the “inverted” yield curve – as the Financial Crisis was beginning to crack the banks.

On Friday, the spread widened to 0.79 percentage points, as the 10-year yield had risen more sharply than the two-year yield:

The negative spread between the two-year and the ten-year yield into the Financial Crisis still resides in the Fed’s collective memory banks. And they have put the collapsing spread onto their public worry list and have mentioned it in recent weeks. The Fed is concerned about the low long-term yields in the face of rising short-term yields. Generally, nothing good comes of this combination.

The fact that the ten-year yield isn’t moving properly in the same direction as the one-year and two-year yields should be one more reason for the Fed to pursue its QE unwind relentlessly. Unwinding its balance sheet that is loaded up with long-term securities would help drive up long-term yields. It would steepen the yield curve. And it would thereby pull the yield spread off the worry list. But for now, the numbers for that QE unwind are not lining up.

Curious things are happening on its balance sheet. Read…  Is the Fed Getting Cold Feet about the QE Unwind?




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  77 comments for “US Treasury Rates Hit Nine-Year Highs

  1. Raymond C Rogers
    Oct 22, 2017 at 12:46 am

    With all of these rates, I wonder if the FED worries about tipping the dominoes in Europe? I mean if a major shift happens in the investment centers of Europe where the investors toss the junk bonds for the US treasuries, what happens to these zombie entities in Europe? Is a shift of such magnitude enough to ripple across the globe? I often wonder if this plays into the decision-making proccess.

  2. Joe
    Oct 22, 2017 at 12:57 am

    2017 – 2008 = 9 years, not 10

    • Glorfindel
      Oct 22, 2017 at 2:20 am

      party pooper

    • Kasadour
      Oct 22, 2017 at 3:37 am

      No, it’s ten years. Jeez.

      • CC
        Oct 22, 2017 at 5:11 am

        Nein ten… nine. Old school, using fingers, not Common Core.

        • cdr
          Oct 22, 2017 at 8:26 am

          Only 9? OK, no problem. False alarm.

    • Oct 22, 2017 at 9:29 am

      OOOOOOPS. Should have counted on my fingers :-]

      • Randy Herz
        Oct 23, 2017 at 8:58 am

        I think the most important number for the fed is the ten minus 30 day yield which is now at 1.23. Look at stlouis fed chart. A couple of more rate hikes wthout significant qe tightening i.e. tens going a lot higher and there will be a serious problem.

    • kam
      Oct 22, 2017 at 9:32 am

      Since a year is a period of time, not a point in time, it depends on whether you count the first year as a 1 or a zero.

      Kinda like 2017 is in the 21st century because the first century starts at zero to 100 years.

      • Mark in Denver
        Oct 22, 2017 at 8:46 pm

        Except in this case Wolf was talking about the period from Oct 20, 2008 to Oct 20, 2017, so exactly 9 years.

    • Laurence Hunt
      Oct 23, 2017 at 8:53 am

      That’s what I was thinking!

  3. raxadian
    Oct 22, 2017 at 3:49 am

    Thry better start destroying that “imaginary money” soon or is gonna be a quite interesting holidays season.

  4. alex in san jose AKA digital Detroit
    Oct 22, 2017 at 4:06 am

    This is why I don’t comment on a lot of threads here. I don’t even know what the treasury rate means, except isn’t something like, when you buy US Savings Bonds, the return is a bit higher?

    That’s basically all I understand: US Savings Bonds because my Great-Aunt Mary who lived through the Depression always gave them to us on birthdays and Christmas and said they were the best way to invest.

    Well, it’s not that bad because I’m young and innovative and I know that Vanguard fund or whatever it’s called, Vanguard whateveritis, is the way to go.

  5. d
    Oct 22, 2017 at 5:34 am

    Holding off on the balance sheet unwind is not the answer to this.

    There are however many many more factors at play for the FED in the sheet unwind.

    The Military and political elements can not be avoided. Each dictates a different action be taken by the FED.

    As always the FED will be wrong. No matter what it does.

    • Lit the lady bug
      Oct 22, 2017 at 2:31 pm

      unwind the bond bubble.

      • d
        Oct 22, 2017 at 10:03 pm

        You unwind the balance sheet.

        You unwind the bond bubble as excess US (Printed) liquidity, reduces.

        MBS will go to the banks first, then pension funds. Who will roll out of junk, at the first opportunity.

        Unfortunately the QE cash generated in the rest of the world, will flow into the void in US junk bonds.

        Once US treasuries are again almost all in US hands, and the majority of US Junk bonds, are held by Foreign Cash.

        Dont be surprised if the “Bond Bubble” Bursts.

        The US is aware others are making war on the $ and its markets, along with its political systems.

        At some point there will be some “action” in reply from the US.

        The US would not Intend that “Action” to hurt its own kind.

        There will be no “Plaza Accord” with china.

  6. NY Geerzer
    Oct 22, 2017 at 6:49 am

    Since mortgage rates and 10 year treasury rates are generally linked, a rise in the 10 year rate would cause a rise in mortgage rates and thus a drop in property values. The Fed should be very worried as there is no good outcome here.

  7. cdr
    Oct 22, 2017 at 8:22 am

    1) Here’s Germany’s yields as of this moment – negative out to 7 years.

    https://www.investing.com/rates-bonds/germany-government-bonds?maturity_from=40&maturity_to=290

    Germany 1M -0.759
    Germany 3M -0.824
    Germany 6M -0.696
    Germany 9M -0.722
    Germany 1Y -0.739
    Germany 2Y -0.720
    Germany 3Y -0.640
    Germany 4Y -0.493
    Germany 5Y -0.275
    Germany 6Y -0.156
    Germany 7Y -0.027
    Germany 8Y 0.114

    This still could become the USA eventually if the wrong people take over the Fed and much higher up in 2020. The risk will exist until someone who is revolted by this possibility takes over as Fed chair and the empty seats are filled by some people with the same philosophy. Then we’ll have a cushion of safety. Negative rates destroy capital formation and are a tax on savings – basically a confiscation of savings likely intended to pay for runaway governmental spending and support the upper 1%.

    2) The Fed has been managing yields for a decade and they worry about yield curves? Weird. They did it and can’t see the connection? Pin heads.

    3) Our yield curves will be strange until Europe normalizes. Also, if there is a stock market dip or large economic problem, the flight to safety will flatten the yield curve.

    • Maximus Minimus
      Oct 22, 2017 at 5:19 pm

      Same thought. The manipulators are surprised that the manipulated subject bites back? Must be kabuki.

    • ASP
      Oct 27, 2017 at 5:07 pm

      I can’t see Europe normalizing for may, many years with the refugee crisis, euro sovereign debt crisis,and terrorism.

      I’m wondering if everyone ditched the euro at once it would lead to a faster stability than keeping it. So all nations would be in charge of their economies again.

    • Wally Palo
      Oct 27, 2017 at 8:47 pm

      I’ve been assuming that the various QE’s prevented a serious depression from developing in response to very bad public policy enacted over the past 8 years. The CFPB and the ACA helped to destroy a hefty chunk of small businesses, slowing down the economy. If these policies are reversed, the US economy will be begin to grow again (as it has) as will the demand for credit. That will bring about the changes that the Fed has been trying to jawbone into existence (without the policy changes).

  8. Gershon
    Oct 22, 2017 at 8:46 am

    Why would anyone buy US debt that is going to be printed (inflated) away? Read Adam Fergusson’s classic “When Money Dies” to see what’s in store for us, thanks to the Keynesian fraudsters at the Federal Reserve.

    • raxadian
      Oct 22, 2017 at 11:09 am

      Ask that to China, they are the mayor holders of US debt bonds.

      • Realist
        Oct 22, 2017 at 12:30 pm

        To oversimplify things somewhat, China has to buy US debt because how would the US otherwise be able to buy all stuff that China makes ( that the US isn’t any longer capable of making ) ?

        What would happen if China did completely stop to buy US debt ?

        Therefore I do not believe in a future military conflict between China and the US because the US is dependent upon China’s manufacturing and that China is enabling the US to borrow back the funds the US does pay to China for stuff ….

        If trade were to break down between China and USA, there would be severe pain in China, but even worse in the US due to its depilated manufacturing capability.

        • ASP
          Oct 27, 2017 at 5:13 pm

          China pretty much already stopped by US T-bills but their investments have gone heavy into buying North American real estate and African/Australian minerals.

          They are buying things instead of just paper and have been for especially the last two years.

      • Mr. Knoss
        Oct 23, 2017 at 10:33 am

        The Federal Reserve holds more than China.

    • Oct 22, 2017 at 12:00 pm

      Keynes gets a lot of bad press from the right which makes no sense.. He believed in a balanced budget except in times of recession because the free market had no self-balancing mechanism and he was right.. Keynes abhorred trade deficits as fatal to an economy in the long run, which we have run for over 40 years except for one. Keynes isn’t here to argue the point but I think he would have been appalled at 9 years of artificial interest rates.. The stimulus spending of 2008 saved us from another depression but it was misdirected toward wealth effects rather than needed infrastructure and now we have the same crumbling bridges, dams, etc. and a stock market propped up by vapors.. Keynes would have been appalled.. Fergusson focused on the hyperinflation of the Weimar Republic and maybe we’ll get there but that has been predicted for the past 9 years and it hasn’t happened yet.. If anyone really wants to know what caused the last recession (that few saw coming because they didn’t know where to look) then YouTube Prof. Steve Keen, “Debt, Inequality, and Crisis”.. I hope you’re not a fan of Krugman because Keen destroys him..

      • JM Keynes
        Oct 22, 2017 at 7:36 pm

        – Steve Keen indeed makes “mince meat” of a number of economists, incl. one Paul Krugman. Keen is convinced Deflation will re-surface.
        – Right, Keynes recommended to run budget deficits in economic bad times and run surplusses in economic good times. The US never ran Surplusses in economic good times after say 1970.

        • Jim
          Oct 22, 2017 at 8:52 pm

          Indeed correct about J.M. Keynes. He would be appalled at the notion of permanent debt hokum spending in both the good and the bad times. He clearly stated this was not his theory. Interestingly, his theory comes from David Humes.

        • Kim
          Oct 22, 2017 at 10:05 pm

          No economist ever makes “mincemeat” of any other economist.

          They are – all of them, from Keynes, to Mises, to Modern Monetary Theory – singing from the same dishonest songbook, that we can have infinite growth on a finite planet and MY OWN BRAND of economic theory can guarantee that.

          Hucksters. Every last one.

          Yes, yes, I know they all refer one way or another to the distribution of “scarce resources” but their every subsequent word tells us that they are committed to infinite growth.

          Don’t worry everyone, we can keep accelerating our consumption of the planet at an ever increasing rate because of uh, supply and demand, or uh, technology or uh, substitution.

          No. We can’t. When it’s gone, it’s gone. Please can someone work out an economic theory based on how we can keep growing and consuming then?

        • Laurence Hunt
          Oct 23, 2017 at 9:10 am

          Schumacher wrote Small is Beautiful.

        • John M
          Oct 23, 2017 at 9:11 am

          JM Keynes

          The problem is the US is involuntarily forced to run budget deficits or Mexican Pesos or South American Bolivars or any third world country’s currency would have no value. Robert Triffin explained that all to us nearly 60 years ago

          https://en.wikipedia.org/wiki/Triffin_dilemma

          After WWII US enjoyed the growth of rebuilding Europe with the Marshall plan but after that point in time the surpluses petered out.. We’ve had two years of surpluses since 1970. Everyone knows what is going on but no one wants to deal with the issue.

          Christine Lagarde and all the rest of the cronies in finance have been kicking the can down the road for a long long time. This whole debacle will come back to bite them in the rear end..

        • Smingles
          Oct 23, 2017 at 12:08 pm

          “Keen is convinced Deflation will re-surface.”

          Me too. I’m a broken record on here, but the deflationary forces on the horizon are FAR BIGGER than the threat of inflation. Many of these are interrelated, and there are no painless solutions.

          *Global jobs crisis (fewer and fewer jobs with less benefits).

          *Demographic time bomb– as of 2017, US has below replacement birth levels (immigration is the only thing supporting population growth, and population growth is essential to economic growth).

          *Retirement crisis. Millions of people worldwide are relying on pensions to retire. Many of these pensions will not exist in 10, 20 years, or will exist with significantly reduced benefits. Millions of more people have no pension or retirement assets at all and will be struggling to subsist.

          *Excessive private/public debt. This will constrain future growth / spending.

          *Globalization. Capital seeks the lowest costs / least regulation. This is generally bad for labor (the vast majority of people).

          *Technological shifts. Automation reducing unskilled and skilled labor. Internet retail killing traditional retail. Car sharing services killing traditional livery. Etc.

          There is one single common thread running through each of these issues: income inequality. It is massively deflationary, and it will only get worse.

          Anyone who looks at the current economic environment and sees hyperinflation does not have a strong grasp on what is happening in the big picture, on what has been setting up for decades. The wheels were set in motion in the 80s. Virtually everything since then has added fuel to the fire. It will culminate in tears and misery for millions.

      • Kent
        Oct 22, 2017 at 7:39 pm

        The anti Keynes thing is purely an effort by Libertarians to divert attention from their own policies. People are quickly figuring out the scam.

      • intosh
        Oct 23, 2017 at 1:10 am

        I am appalled at how many times I see people use the word “Keynesian” but seems to have no idea about the man’s theories. Did they have this simplistic and wrong idea that any government action on the economy is “Keynesian”?

      • Kay
        Oct 24, 2017 at 7:34 am

        Professor Mark Blyth is another great political economist to watch. He frankly states the Neoliberal system is dead.

    • JM Keynes
      Oct 22, 2017 at 7:28 pm

      – Yes, but Fergusson “doesn’t get it”. He also doesn’t understand how a number of things work in the financial world.
      – (Credit) Inflation is ALWAYS followed by (Credit) Deflation. And even Hyper-Inflation is VERY Deflationary.
      – I am actually looking for an entry point to go “long” US T-bonds.

  9. Mshinesmd
    Oct 22, 2017 at 9:13 am

    I was listening to a radio show and a caller said we should let the free market in healthcare run, like prior to the Affordable Care Act. I wondered what planet he lived on (or country), and as just one example I thought how Medicare cannot negotiate drug prices (Part of Bush’s Part D). This article reminded me of that and how managed the economy and society has become for “our own good” in all areas. I bet the next Federal Reserve chairman will be the greatest dove yet as it continues these disastrous policies. The Fed will not taper much is my bet. It is all about what looks good (manipulated CPI anyone?, GDP), not what is good for the majority of the US.
    Also, if we raise rates I wonder if there will be a huge amount of buying US bonds in Europe, if their rates remain low and if that will keep yields down.
    I also wonder how this wonderful tax cut will affect the dollar and rates, it was interesting how the dollar reacted to the budget passing (up .05%). I would have thought the deficit would be an issue.
    And apparently from a prior article the Fed is putting money in. Also Asia appears to be buying Treasuries as the TICs data showed.

    • r cohn
      Oct 22, 2017 at 9:48 am

      There are two factors affecting bond yields in Europe and Germany specifically.
      QE by Draghi is affetcting all shorter term and medium term bond yields.There will be NO bond buyers at current yields without Draghi’s intervention
      Longer term German yields are reflecting the probability of a breakup in the Eurozone

    • QQQBall
      Oct 23, 2017 at 12:11 pm

      The Hep C drug Harvoni is $1,000 a pill here. The generic in India is $10. They also have low-cost generics in Egypt. Tell me again why drug prices cannot be negotiated here?

      • Len
        Oct 23, 2017 at 5:47 pm

        Because the patent holder is granted a US government monopoly but not one in Egypt, India etc. – until TPP passes.

  10. Drango
    Oct 22, 2017 at 9:14 am

    Rising long term yields would indicate confidence in the economy and the Fed’s ability to improve it. Low yields indicate that the bond markets have very little, if any, confidence in the Fed’s abilities. Low yields enable stock buybacks and “record” stock prices. One policy will lead to a healthier long term economy. The other enables the transitory illusion of prosperity to continue. Looking at the last ten years, why would anyone believe that the Fed will do anything but stay the course?

    • economicminor
      Oct 22, 2017 at 11:48 am

      I would think the opposite.. rising long term rates means more risk and more inflation while lower long term rates means that investors see little risk and low inflation over the longer run..

      All this just confuses me. I see lots of risk with Zombie companies, leveraged buyouts, loads of leverage every where with both business and consumers. Add in one of the longest bull markets, war and instability in to many places in the world, pension funds and other liabilities that would fund consumer spending way underfunded and now a Congress that is embracing deficits not to be invested in infrastructure but just consumed.

      All this screams to me much higher rates yet higher rates would seem to me to just exacerbate all the above..

      • cdr
        Oct 22, 2017 at 1:33 pm

        You’re both wrong.

        Rising long term rates reflects a traditional need for a decent return on capital that comes from savings, not money printing.

        Historically, up until less than 9 years ago, this was the common way of the world throughout all of history. Central banks, uneducated pundits, and free money skimmers have made us forget this.

        Please correct your thinking. Lots of bogus theories have been invented to oppose rising interest rates.

        • economicminor
          Oct 22, 2017 at 3:38 pm

          What I was taught was that interest was suppose to represent three elements. The rate of inflation, the risk and a reasonable rate of return. The interest rate should take in these elements.. Until they didn’t. Now they don’t because of CB intervention.

          We know that risk has been ignored and there is no real return on capital (unless you sell at or near the top. Which few do). Most savers, who’s capital is being used, get a negative return vs. inflation and risk.

          It is interesting to me how this unstable low volatility can last longer than I would have thought. When something can’t continue, it will stop.. No one seems to know where that point is.

        • d
          Oct 22, 2017 at 10:09 pm

          “It is interesting to me how this unstable low volatility can last longer than I would have thought. When something can’t continue, it will stop.. No one seems to know where that point is.”

          When all the Major CB’S stop printing, and unwind their balance sheets..

          Problem

          china and Russia will never do that. Voluntarily.

        • cdr
          Oct 22, 2017 at 4:45 pm

          economicminor,

          Even if inflation is 0%, there still should be a return on borrowed capital. I have what you need. I worked for it. It’s a reflection of my human capital. If you want to borrow it then pay me for the time you use it based on how risky you are. Simple. Not complicated. No PhD needed to explain it. No finance courses needed.

          Printed money for basically free skews the cost structures for money in bizarre ways compared to history. Most people act as if inflation is the only cost determinant for money. They are dumb, lying, or shills.

      • d
        Oct 22, 2017 at 9:43 pm

        “I would think the opposite.. rising long term rates means more risk and more inflation while lower long term rates means that investors see little risk and low inflation over the longer run.”.

        That is a real world theory

        We live in a QE world. There is that much cash floating around not printed by just America, the EU (still Printing) the tens of trillions china has clandestinely printed and is still printing, It will accept 0, or even real – rates, just for haven.

        The long term US yield and rates, reflect the massive amount of competition/demand for US notes in the QE world.

        china tried dumping US Notes, result, Nada. So Now in the QE environment. It is trying issuing its own US notes, to take demand from US Notes. Trying to force up the US rates, so Americas borrowing costs, and the $.

        When a group of states/nations are waging Economic warfare on America and the $. In a QE Environment. The basic theories on rates and yields, in the NON QE Environment, go out the window.

  11. breamrod
    Oct 22, 2017 at 9:20 am

    It’s a interesting fix the fed is in now. Seems like they might be chickening out if the data that Wolf presented is right. They’ve got to raise rates though because of the pensions. That’s going to be the issue in 2018. what a mess!

    • Gershon
      Oct 22, 2017 at 9:30 am

      They’ve got to raise rates though because of the pensions.

      The Fed does not give a damn about pensioners or savers, as they’ve showed by bilking them out of billions in interest income, forcing them to seek yield in Wall Street’s rigged casino, and destroying their purchasing power through the debasement of the currency. The Fed is solely preoccupied with concentrating all wealth and power in the venal hands of its oligarch cohorts. Understand that, and everything the Fed does makes perfect sense.

      • economicminor
        Oct 22, 2017 at 11:51 am

        yet consumer spending is 70% of the economy and letting the pensions fail due to low returns would make their problems even worse… Damned if they do and damned if they don’t.

        • QQQBall
          Oct 23, 2017 at 12:41 pm

          the FED is a private bank owned by member banks. Its want to survive. The various programs floated asset prices so loans that were evergreened because money good. Banks deposited bad loans at FED for 100% draw on face value; they then levered the money up. Now the Fed will offload the loans.

  12. R cohn
    Oct 22, 2017 at 9:42 am

    Be patient.
    Longer term bond yields are about to skyrocket as the Fed and other Central banks go into QT and reduction of their QE respectively.
    Higher long term bond yields will burst the stock market and real estate bubbles.

  13. Bobber
    Oct 22, 2017 at 9:58 am

    10 year debt of any government may be worthless. They can avoid default through printing, but if the government breaks up, the currency is worthless. Catalonia is a good example of things to come. Governments have become too large and they are now binding future generations with illegitimate debts. These governments will not last, plain and simple. They are trying to tax people who aren’t even born. People will find such debts easy to repudiate in the not too distant future, especially when pension promises are broken and inflation erodes the value of work.

    • fajensen
      Oct 23, 2017 at 12:08 am

      Government Defaulting on bonds? That’s how its supposed to be!

      In simpler times it was expected that sovereign bonds were riskier things than, say, mortgages because the sheriffs could be send to collect on the latter. With a state, having kinetic options and such, this is not so easy.

      Then the neoliberal muppets infested everything and debt became a Sacred Obligation that not even God shall resolve! T

      That fantasy now being “Facts” taught at places like Harvard, they even wired this into regulation like Basel II that OECD government bonds are cash-equivalents, 110% secure and can be used freely as reserve capital. Which created the sticky mess in Greece. In the future, Spain, Portugal, and Italy.

      To make neo-lib fantasy-land better match reality, they now are doubling down on creating enforcing regimes for defaults that are isolated from any form of democratic influence, with secret arbitrations and unelected committees overriding governments.

      Governments may fail, but, the debt will not fail – until the governments restore the kinetic option on the collectors.

  14. Oct 22, 2017 at 10:04 am

    I looked at a lot of charts, if it was anything else I would say that yield spread chart is going to zero. I also think negative money velocity is coming as well, it’s called backflow in water pipes. If you’re in cash you will soon be part of a crowded trade. Wolf said people are buying high yield because that’s whats available, and if the Fed takes bonds out of the market the narrowing spread is more profound, the net outcome will be to drive the bond market into ZIRP, once and for all, pullback the curtain and behold the wizard.

    • economicminor
      Oct 22, 2017 at 11:56 am

      “If you’re in cash you will soon be part of a crowded trade. ”

      Would you elaborate on this please as I am mostly in cash.

      Is there any safety anywhere?

      • d
        Oct 22, 2017 at 8:39 pm

        Is there any safety anywhere?

        The problem since 2000 has been where to put the BIG pieces.

        Metals are grossly over-inflated along with stocks. Land is to easily confiscated, and again, buying now is not good.

        Bonds dont return, and most aren’t worth anything.

        Those in cash for some time are lambs at slaughter, as when assets tumble, they will not be allowed to return to pre bubble lows.

        T’S are only as good as the Governments behind them and again don’t pay, also there are the dangers of FX movements.

        Banks and the Bureaucrats in Government have created a situation where Nothing is beyond them or safe from them.

        Unless you enter the asset ponzis. wherever you put it its devaluing.

        Many peopel have this problem, those with the answer aren’t talking.

        Having a well stocked long term self sufficient (18 Months +) sail boat (freehold owned by a trust) and knowing how to use it, is viable, as one day you might just want to move 250 miles + away from land. Then figure out what to do, or where to go.

        You need it Moored away from the Hurricane belts. And don’t rely on public aircraft to get to it.

      • Oct 23, 2017 at 11:04 am

        The government can prevent a run on the banks, (by printing cash) but they can’t prevent a massive investment shift to cash. Several large investors like Warren B, have large cash positions and a shopping list of assets they want to buy when the market pulls back.
        (To that end they might very well start the selling)
        Vacant land is still reasonably priced, due to high development costs. City planners will loosen their permit requirements after a few years of recession and no new building. Buy something will a minimal tax base and no HOA. Land is still one of the few things you can’t margin to buy stocks, there is still plenty on the market, but like gold when the price falls, supply will disappear.

  15. Lee X
    Oct 22, 2017 at 10:05 am

    Lets sum up. Cheap credit for far too long brings demand forward inflates assets, median wages still suck, the proposed budget would crush demand further (healthcare cuts, etc.), 5+ yr treasuries betting against the Fed. The Fed really is in the proverbial rock and hard place, by their own doing.

    • Jim
      Oct 22, 2017 at 9:03 pm

      Indeed-by their own doing-Most will not understand that fact until after the collapse. This next bubble bust will test central banking in general. Increasing balance sheets by 300+% over the last decade with fake credit hokum reserves and purchasing poor quality assets impairing balance sheets will come at a grand cost.

  16. Citizen AllenM
    Oct 22, 2017 at 11:14 am

    Well, the longest bull market in bonds in now over, trading will now resume.

    Oh well. Like I care. If you offered a 4% 5 year CD- you would be drowned in money.

    So all of this doom and gloom doesn’t represent anything to fear, but simply return to a more normal state. I would even be on a temporary yield curve inversion as things normalize.

    But so what? Immense amounts of liquidity to be destroyed.

    And the relevance to the normal american? Nothing much.

    Commercial property will take a bath, but it has been doomed for quite a while. That alone will cause quite a bit of change in America, for better or worse.

    Time to sell stuff, and we have immense amounts of it in America, and a society that thinks it can keep living a higher lifestyle than the money running through it can sustain – see the dead levels of circulation below the speculator classes….wage increases are still mostly moribund.

    But nevermind- instant hyperinflation is here!!

    HA. The 70s show will be in 30 years from now….

  17. Matt P
    Oct 22, 2017 at 12:05 pm

    Are treasuries tea or did you mean steepen?

  18. Plumas One
    Oct 22, 2017 at 2:10 pm

    A yield rally. Yellen being spiteful ’cause she’s being replaced ?

  19. Ishkabibble
    Oct 22, 2017 at 2:16 pm

    Because the word “confidence” is one of the most important words in the English language, especially when it comes to “money” and its creators and managers, if think it is very important that every English speaking person knows what that word means, at least as it is defined by some dictionaries.
    =======
    -the feeling or belief that one can rely on someone or something; firm trust.
    “we had every confidence in the staff”
    synonyms: trust, belief, faith, credence, conviction
    “I have little confidence in these figures”
    antonyms: skepticism, distrust

    -the state of feeling certain about the truth of something.
    “it is not possible to say with confidence how much of the increase in sea levels is due to melting glaciers”

    -a feeling of self-assurance arising from one’s appreciation of one’s own abilities or qualities.
    “she’s brimming with confidence”
    synonyms: self-assurance, self-confidence, self-possession, assertiveness; More poise, aplomb, phlegm; courage, boldness, mettle, nerve

    -the telling of private matters or secrets with mutual trust.
    “someone with whom you may raise your suspicions in confidence”

    -a secret or private matter told to someone under a condition of trust.
    =====

    How many times does an economic system have to fail (along with a shorter and shorter time interval between those failures), to cause those who live within it to lose “confidence” in its appropriateness for their lives and in those who have been given (or have taken) the responsibility to “manage” it?

    After yet another announced “financial crisis” happens in the very near future and all human creatures great and small are once again forced to not only think about, but discuss, whether or not to march into the future with the completely unprecedented, completely experimental economic system that was literally conjured up out of thin air by a microscopic percentage of the human population in about 2008 (quite coincidentally, a new design whose sole purpose was to keep on life support a HISTORICAL economic system in which the vast majority of wealth and capital equipment is owned by that exact same microscopic percentage of the population) has once again failed for the vast majority of people, in just exactly WHAT form of economic system and in just exactly WHAT form of “money”, if any, will the vast majority of people “have confidence” (and from just exactly WHERE will they obtain that money)?

    These are not ridiculous, irrelevent questions. Even before the imminent crisis, out of simple self-preservation, that very same miscroscopic percentage of the population is attempting to answer them every moment of their waking lives.

    Therefore, as repulsive as it might be, we, the vast majority of so-far-completely-powerless people on earth should attempt to do the same. There is no doubt that the anwers we come up with will be vastly different than those of the microscopic percentage.

    For some easy examples that the micrscopic percentage are asking and answering this very day, just exactly WHOM should receive the NEXT gigantic “bailout package” from the Fed’s printing press?

    Just exactly WHICH private corporation’s stocks should the Fed (or the ECB or the BoJ or the BoE, etc.) buy in the near term?

    What should be the price of gold and silver and USD and EUR and CAD and CNY and treasuries and human labor and food and TVs and homes and land, etc. etc. etc.?

    See what I mean? The list is practically endless for those like the microscopic percentage that have the “confidence” to ask and answer them.

  20. ppp
    Oct 22, 2017 at 2:53 pm

    It should be no surprise that this is happening: irrational things happen when a government is bankrupt. At that point, there is no “fresh start.” Now what?

  21. Gershon
    Oct 22, 2017 at 8:54 pm

    Meanwhile, ‘Muricans are sinking deeper and deeper into debt slavery.

    http://www.businessinsider.com/americans-are-more-indebted-than-ever-raising-economic-risks-2017-10

  22. mean chicken
    Oct 22, 2017 at 11:44 pm

    When this greatest wealth transfer in history of man has run it’s course, historians will look back and see yet another Pump and dump circus, where the FED is ringleader and all three rings smell of ELEPHANT dung.

    Sounds vaguely familiar, doesn’t it?

    So, what’s a bull steepener?

    OBTW, nice rally for the rails, parked locomotives and all.

  23. Thunderstruck
    Oct 23, 2017 at 3:10 am

    OK, do we *really* think that the Federal Reserve Bank cares what the yield is on all of those Treasuries that it continues to hoover up (while pretending that it is shrinking its balance sheet?)?

  24. Oct 23, 2017 at 7:11 am

    Is Bitcoin secure?

    • Ishkabibble
      Oct 23, 2017 at 12:20 pm

      You’ll have the one-word answer to your three-word question only after you answer a three-word question.

      What is Bitcoin?

  25. zoomev
    Oct 23, 2017 at 2:03 pm

    Wolf,

    When is the next data point that will indicate if the FED has begun the unwind in October as promised?

    • Oct 23, 2017 at 2:48 pm

      The Fed’s balance sheet is released weekly. I’ll do another update in early November. This will include all of the October balance sheet releases. So this should give us a picture of what the Fed has done during its first month of QE unwind.

  26. Charles Vo
    Oct 23, 2017 at 8:07 pm

    QT wouldn’t necessarily raise the long end of the curve. The Fed is letting treasuries mature, but they are not outright selling treasury bonds and notes into the market. The federal government will have to sell more debt to other entities in the auctions. However, the federal government can choose what term length these new treasury auctions will be at. If they choose just refinancing at the short end then long treasuries will not be pressured by additional supply.

    • d
      Oct 24, 2017 at 1:07 am

      “The federal government will have to sell more debt to other entities in the auctions.”

      How about others will have to seriously under bid the fed to get T’s as the FED dumps MBS and keeps on buying T’s.

      As it intends to.

      The FED can buy T’s at – 5% and 0 yield and it Negatively effects them and the Govt directly, not 1 bit.

      But it would but serious disruption into the Economic system.

      Nobody can stop the FED scooping up all the T’s if it decides it wants them, so it can mange which American entities end up Holding them them, if it wants to.

      The greater the demand for T’s, the lower the rates and Yields on them.

      T auctions are still oversold/bid by volume. Every time, at very low rates and yields.

      Very low rates and yields are bad for holding to maturity, but they reflect the HUGE haven driven demand, for US T’s.

      Which is why PBOC is having success. Selling dollar bonds. As there are lots of dollars seeking any kind of haven (Even the PBOC) that does not have a 30% plus junk-bond or Em default risk.

      If the FED follows through on the MBS unwind Program, this excess of dollars, will start to change end 2018.

      A lot of water will pass under the bridge between now and then.

  27. Gershon
    Oct 24, 2017 at 8:49 am

    Yellen must be as nervous as a six-year-old at the Neverland Ranch as she contemplates the ghastly specter of the bond vigilantes forcing her hand on interest rate hikes as investors demand a yield more commensurate with the risks of buying monetized US debt.

    http://www.zerohedge.com/news/2017-10-24/10y-treasury-yields-just-did-something-every-bond-bear-was-waiting

  28. Tom Kauser
    Oct 24, 2017 at 1:25 pm

    The only thing on the balance sheet is junk from ’08 and the operation twist lie and the assumption that the ” Fed put” extends into bonds ? The Fed did a lot of tricky things 10 years ago and the markets expect the same this time? The Fed crushed yields and now everyone hates weekends and holidays? Soon the enjoyment of weekends will have to be suspended and than punished? A quarter of a % is better in stocks than bonds?

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