10-Year Treasury Yield Hit 1.21%, More than Doubling Since Aug. But Mortgage Rates Near Record Low. And Junk Bond Yields Dropped to New Record Lows

Bond Market Smells a Rat: Inflation. So the Fed seems OK with rising long-term Treasury yields.

By Wolf Richter for WOLF STREET.

The bond market smells a rat, but the mortgage market and the high-yield bond market are holding their nose and plowing forward: The 10-year Treasury yield rose to 1.21% on Friday, the highest since February 26, when markets began their gyrations. This yield has more than doubled (+133%) from the historic low of 0.52% on August 4.

In early August, Wall Street hype mongers were still out there pushing the meme that the 10-year yield would fall below zero and be negative for all years to come, in order to entice buyers to buy at that minuscule yield. And had the yield dropped below zero, those buyers would have made some money – especially those with highly leveraged bets.

Alas, when potential buyers need to be enticed with a lower price, which is what began to happen after August 4, the price of that bond falls and therefore the yield rises, and those who’d bought at the lower yields are losing money. For example, at the most basic unleveraged level, the iShares Treasury Bond ETF [TLT], which tracks Treasury securities with at least 20 years of maturity left, fell 1.24% on Friday and is down 14.3% since August 4.

The 30-year yield rose 7 basis points on Friday to 2.01%, the highest since February 19. The yield has more than doubled from 0.99% on March 9.

The Fed has the short-term Treasury yield locked down near zero, via its various interest rate mechanisms and Treasury purchases. Even the yield of the 2-year note is near zero, at 0.109%. With the short end near zero, and the yield at the longer end rising, the yield curve has steepened.

One of the classic measures of the yield curve, the difference between the 2-year yield and the 10-year yield, widened to 1.1 percentage points on Friday, the widest spread since April 2017. That spread had turned negative briefly in August 2019, when the yield curve “inverted” as the 10-year yield dropped below the 2-year yield.

Mortgage rates went in the opposite direction, but are now having second thoughts.

The average 30-year fixed-rate mortgage rate, which generally tracks the 10-year yield, continued dropping after August 4, even as the 10-year Treasury yield was rising. Finally, in early January, it stopped dropping when it hit 2.65%, and has since ticked up a tiny bit. According to data from Freddy Mac, the weekly average as of February 11 was 2.73%.

This chart of the mortgage rate as per Freddie Mac (blue line) and the 10-year Treasury yield shows the disconnect since last summer. But as weekly numbers, they lack the movements over the past two days, when both have risen:

But Junk bond yields continue to drop from record low to record low.

The average yield per the ICE BofA US High Yield Index, which tracks US-issued junk bonds across the high-yield spectrum, dropped to 4.09%, the lowest in history, going from new low to the next new low, documenting every day the fabulous bubble going on in the riskiest end of the credit markets.

At the upper end of the junk bond markets, the average yield of bonds in the “BB” category (my cheat sheet of corporate bond ratings), fell to 3.19%, according to the ICE BofA BB US High Yield Index, having fallen from historic low to historic low. That’s what 10-year Treasury securities were yielding in October 2018.

But at the upper end of investment grade, average AA-rated corporate bonds have been slowly following the trend set by Treasury securities, but at a much slower pace, having risen just 25 basis points since August 4.

The Fed…

The Fed appears to be OK with rising long-term Treasury yields. Multiple Fed officials have said that if the higher long-term yields are a sign of rising inflation expectations and economic growth – rather than financial stress – they are welcome. And so they’re allowed to rise.

For the Fed, these increases in the long-term Treasury yields and the continued declines in junk bond yields and the near-record-low mortgage rates are a soothing combination, speaking of inflation and not financial stress.

If the spread of junk bonds and mortgage rates to Treasury securities were to blow out suddenly, that would be a sign of financial stress, and might be more worrisome for the Fed.

So the rat that the Treasury market is smelling is consumer price inflation. It’s gnawing its way through various layers of the economy. And the Fed has said that it will ignore inflation for a “while,” and that it will welcome an overshoot of inflation. Only when it becomes “unwanted” inflation, as Powell put it without specifying what that means, would the Fed crack down.

So maybe the Fed would crack down when inflation stays above 4% or 5% for a “while?” Once inflation has solidly set in, it’s hard to stop. That’s the rat the Treasury market is smelling, and if you’re sitting on a bond that yields 1.2% for the next 10 years, that’s not a mouthwatering item on the menu.

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  266 comments for “10-Year Treasury Yield Hit 1.21%, More than Doubling Since Aug. But Mortgage Rates Near Record Low. And Junk Bond Yields Dropped to New Record Lows

  1. keppered says:

    Watch the ten year folks as the dollar continues its demise into worthlessness.

    • 2banana says:

      Wouldn’t the dollar rise as interest rates in America rise?

      • keppered says:

        It did once long ago when America had a strong middle class.

        • Cas127 says:

          Going forward, I think it is safest to assume that the US won’t be granted “safe harbor” benefits by default anymore…20 yrs of more or less failed interest rate manipulation have drilled that into the head of savers around the world.

          So, if some decent sized country, with a healthy economy and a healthy debt to GDP is offering 2x or 3x UST rates (not hard if 10yr is 1% or 2%), money will flow out of US, weakening the USD.

          If the UST is allowed to go up by some insulting 10 or 20 bps, while a better economy’s is going up by 100 or 150 bps…the USD will still fall.

        • 2banana says:

          Does such a place exist?

          Russia is the only place that comes to mind….

          “So, if some decent sized country, with a healthy economy and a healthy debt to GDP is offering 2x or 3x UST rates (not hard if 10yr is 1% or 2%), money will flow out of US, weakening the USD.”

        • Happy1 says:


          I hear you, and agree that eventually there will be other countries that fit what you are describing, but in the near term, the most similar countries to the US, namely the EU countries and Japan, have far lower yield on similar debt. Who exactly is in position to take this role? China isn’t a candidate, they don’t respect contracts or rule of law. I think things will change but the US will probably have higher yields for their debt for some time.

        • Cas127 says:


          “China isn’t a candidate, they don’t respect contracts or rule of law”

          True, but 20 years of DC directed ZIRP has taken the shine off of US integrity too (Takings clause is one place that immediately leaps to mind when reflecting upon the Constitutionality of multi decade ZIRP).

          Yuan is very undervalued (CCP rigs like hell to keep it so…but not forever) so it is the most obvious candidate.

          Danger of seizure/currency controls is legit, but there is already a fair sized offshore Yuan mkt…and that fact works against the danger of seizure/control.

          And, in the long run, it will be in the CCP’s interest to further internationalize use of the Yuan…so they will further loosen control.

          It will be a race between a 8% Yuan with a 4 risk rating and a 2% USD with a 2 risk rating…huge amounts of international capital will flow to the former.

          Yuan Treasuries at 8% will double in 9 yrs.

          US Treasuries at 2% will double in…36 yrs.

          Plenty of intl money will take that bet.

          The US continues to lean more and more upon a rotting crutch.

        • nick kelly says:

          ‘So, if some decent sized country, with a healthy economy and a healthy debt to GDP is offering 2x or 3x UST rates (not hard if 10yr is 1% or 2%), money will flow out of US, weakening the USD.’


          OMG: where to begin? A good place would be Wikis ‘Russian Financial Crisis 2014-2017’
          It only ends at 2017 because that’s when it was written, Wiki being an online encyclopedia not a news site. Not much has changed.

          Then there is the ruble. I used to spell it ‘rouble’ but apart from the single ‘r’ it’s rubble. Right now about 2 cents US. You get a WAY better deal if by slim chance you want rubles, the 2 cents is the other way round. In one famous week it lost a third of its value.
          Interest? That will be paid in rubles.

          If you go into a better Moscow restaurant the prices will be in US $ or euros. But it would be against the law to pay in either. Only rubles, obtained officially at a very poor rate. This is a glimpse of the way Russia hordes dollars.

          The GDP per capita at well under 10K is right down there with, let’s be polite and call them ‘developing’ countries. Far behind Argentina.

          Every third comment on this topic and the rest is about the huge inequality in the US.
          True, but not like Russia. The economy is roughly the size of Canada’s but supporting 4 times the population. So with the average Canadian being 4 times as wealthy, Canada should have more billionaires. Russia has 4 times the number of billionaires: the oligarchs, making Russia by this measure 16 times more unequal than Canada. None of these oligarchs are the Bill Gates variety. Not one invented or developed anything. They are the survivors of the scramble for the USSR’s commodity wealth. The aluminum sector particularly but not uniquely strewn with corpses.

          The saddest may be the pensioners. They survive on about 110 U$ per month and they don’t get that in US $! Not long ago a young lady on Russian TV actually laughed as she read the benefits for pensioners. It was stuff like: ‘medicines 11$’. Hopefully she still has her job.

        • NBay says:

          What else did we have in the “maga” days? It’s so simple.
          It’s worth a read, honest! Why complicate things? Unless your mental “software” is corrupted/prejudiced somehow? What it doesn’t show is estate tax, which IIRC STARTS at around $11M/individual. Yes there are fewer jobs, (and MANY unneeded or non-beneficial to society ones).
          And that is precisely where a massive Green New Industry comes in.


      • Giorgio says:

        If Interest Rates rise the Financial System implodes… They have to invent a way to create slave workers to pay back the Federal Debt. A Social salary for people with debt. Those people will have to work for free (possible) At the same time I see a Central Bank Digital Currency linked to a social score. Results. Few multinationals (monopolists) will own 90% of the goods and services. Most of the workers that will work for free to pay back the debt + a CBDC that will be programmed…Depends on your behavior you’ll be able to spend anywhere or just in some places or for some goods and/or services. With the CBDC the Central Bank will also be able to plan the inflation (Ex. you’ll have to spend your salary within 20 days or it will expire)

      • The dollar will rise when foreign buyers of US debt support higher interest rates in the bond market, which is already happening. Mortgage and corporate debt which are not pricing in the rise in Treasury yields offsets consumer inflation. Corporations can accomodate wage pressures. Treasury policy would be to goldilocks them, keep rates low enough to avoid funding problems, and a Fed balance sheet explosion, high enough to keep them coming back, or to allow bank credit to tighten. China is allowing their currency to rise which may be a sign they want to keep their trade competitive should the dollar firm.

    • David Hall says:

      Kyle Bass wrote about unprecedented Chinese money printing. Sometime ago I found statistics showing they printed more money than the US. Their economy is not slipping into oblivion in spite of them printing more money. They were able to afford to build a replica of the Eiffel Tower and many other things.

      • sunny129 says:

        David Hall

        How much of the money going into ‘productive’ economy NOT the Eiffel tower, empty cities, roads and bridges to going no where?
        Nearly 1/3rd of their stated GDP is non-productive!

        • Adam435354 says:

          sunny129, that is not true that “…empty cities, roads and bridges to going no where…” I have lived here for 20 years. They build the infrasctructure and then the area gets populated. What you believe is what i used to believe. Try baidu maps street view. You can see these roads built with nothing around then four years later buildings and shops an people. That map service has snapshots of different years. I was very surprised, now impressed.

    • Ppp says:

      Utter nonsense. Wolf has this wrong. No one wants to commit their money on long term U.S. debt. How do we know? Treasury bills are sky high and rates are going negative. Inflation? Nonsense. You would need economic activity to generate inflation. Economic activity is falling off a cliff.

      What uninformed world is Wolf living in?

      • Depth Charge says:

        No inflation? Check out lumber prices. Check out auto prices. Check out house prices. Need I go on?

        • Cas127 says:

          Cough, cough…check out medical inflation.

          Oooo, oooo! Professor, professor!!…check out education inflation.

        • Grammar Nazi says:

          i think the specific examples you mentioned are due to supply chain bottlenecks. With 25 Million americans currently unemployed i dont see inflation on the horizon.

        • Depth Charge says:

          “i think the specific examples you mentioned are due to supply chain bottlenecks. With 25 Million americans currently unemployed i dont see inflation on the horizon.”

          Nonsense. These all existed pre-COVID.

      • Wolf Richter says:


        If you’re waiting for incomes to rise to trigger inflation, well, personal income shot up, as wages recovered as the highly paid switched to work-from-home and government stimulus and unemployment benefits layered money on top. This does not yet include the $600 stimulus check at the end of Dec early Jan, nor the potential future $1,400 stimulus check


        • ppp says:

          The fact of the matter is that inflation is sustained growth across all sectors of the economy. We’re just not seeing it. If anything, we’re becoming Japan. Relation #4 has proved to be a big disaster.

        • philm says:

          These inflation/deflation ” discussions” are always tough without us all defining terms. Prices up or down don’t necessarily indicate system inflation of deflation.

          All too often inflation gets measured via the official government metric of CPI ( which has been greatly adjusted over the years to keep the index down).

          More $’s created into the system in my mind creates an inflationary environment… your currency is worth less.. against a standard measure. The USD versus Bitcoin could be a measure of inflation. The USD versus the average price of a single family home could be a measure.

          Take the 2% inflation target the Fed wants. Over 30 years the $ is going to be nearly cut in half in value.

      • Tom S. says:

        Commodity prices are going up across the board. There’s a shortage of semiconductors. On what planet does that not become inflation?

      • Swamp Creature says:

        We have inflation and the economy is falling off a cliff.

        The “Gipper” called this an economic stew created by Carter.

        Said: “It was an economic stew that is turning the nations stomach”

        • Swamp Creature says:

          Check out the prices of items in the supermarket that are imported from Europe. I buy a lot of these items. They are up 15% in the last month alone. I call that inflation.

          Those government CPI figures are total bulls$it. Just like their bulls$it unemployment figures.

          Resturants have just opened for indoor dining in Swampland. They’ve raised their prices 10% or more to compensate for the lost business due to the pandemic.

        • RightNYer says:

          15% is being generous on some things. I used to buy the two packs of Spanish Queen Olives at Costco. Pre-pandemic, they were $7.99, then $9.99, then $10.49, then $10.99, now $11.49. That’s 44% in one year.

        • Swamp Creature says:


          Those prices of imported food items are probably the most accurate measure of inflation than anything coming out of the government. People like myself can afford to pay the price for these items because we are concerned about quality and health. As long as people pay these prices , they will continue to go up. I believe the average inflation in food alone now is close to 15%.

        • RightNYer says:

          Swamp, yes.

          I’m fortunate enough that I can afford to buy the food I want (especially since I’m not eating out anymore), but the levels of inflation on these types of things are insane. And while 10% of the cost increase can be explained by the Euro climbing 10% against the dollar, that doesn’t explain the rest.

        • Swamp Creature says:

          A lot of it IS the devaluation of the dollar. That’s why you see it so quickly on the imported items. Labor costs and transportation are added in. Where I live people’s food budget is such a small % of their disposable income. They are very health conscious. So they pay whatever the price is to get what they want. They don’t switch to a lower cost item. In other words the price of the items is inelastic. This is the best inflation measure out there. So I’m keeping a close eye on it.

  2. WES says:

    This weird bond world proves the bond market is 100% rigged.

    I guess the US government will just borrow money on the short end, and the Fed will only print money at the short end!

    There will be no money printed on the long end!

    The long end be dammed!

    • keppered says:

      Who is buying the bonds?
      BlackRock that’s who.
      Brought to us by our dear friends at the central bank near you.

      • Lynn H says:

        So, if Rchon is right; “The only way to make a “real” return at current bond prices prices is to have deflation. But deflation seems to off of the table with the 10 year implied inflation rate > +2.20% .” And Blackrock is buying bonds..

        Does that mean a possibility of deflation? I am assuming Blackrock is not especially altruistic.

  3. 2banana says:

    Or if you have your money in a savings account at 0.00000001%

    “So maybe the Fed would crack down when inflation stays above 4% or 5% for a “while?” Once inflation has solidly set in, it’s hard to stop. That’s the rat the Treasury market is smelling, and if you’re sitting on a bond that yields 1.2% for the next 10 years, that’s not a mouthwatering item on the menu.”

    • Paul from NC says:

      So true. Seeing my savings account monthly statement from my credit union arrive, frankly, feels like taunting now.

  4. keppered says:

    On another note (sorry to kill your thought processes)
    The next nominee to be chairman of the Securities & Exchange Commission could have… That maybe have…a net worth between $41 million and $119 million. !
    A Goldman Sachs / Vanguard wonder kid?
    Born in Maryland whose daddy took him as a youth to count nickels from the vending machines. – Wikipedia
    The s a lot of nickels in 64 years.
    The worst things get the more they stay the same.

    • WES says:

      Yep! Foxes being put in charge of all the hen houses!

      Everything is now perfectly normal!

      As far as inflation goes, none for me, but plenty for you! Government to borrow at “zero” short end but you have to borrow at long end!

    • Island Teal says:

      Yep…Gary Gensler….check out his performance at the CFTC and his relationships with TBTF.

  5. Rcohn says:

    Real Treasury yields
    5 year -(1.76)%
    7 year -(1.39)%
    10 year-(1.02)%
    20 year-(.51)%
    30 year-(.27)%

    The only way to make a “real” return at current bond prices prices is to have deflation. But deflation seems to off of the table with the 10 year implied inflation rate > +2.20% .
    So who is going to buy bonds to finance the estimated $ 4 +trillion Federal deficit . At the above negative real yields , the answer is basically ONLY the FED . And current Treasury holders will probably be the source of some additional selling because of the negative yields at current prices.So nominal yields ( inflation + real yields) are going have to go a lot higher to attract bond buyers and compensate bond buyers with positive real returns. The FED is in real bind of their making. The more that they buy , the weaker the dollar. And the weaker dollar makes all imported goods sold in dollars cost more and causes inflation in imported goods.And a weaker dollar means that foreigners will be not be buyers of Treasury and will be net sellers. A weaker dollar also means that more and more transactions will be done in other currencies , weakening the dollars status as The RESERVE CURRENCY.

    There are obviously lags between Treasury yields and mortgage rates , but mortgage rates are only going higher with Treasuries at these rates.
    Junk bonds have a relationship with both interest rates and with the strength of the NASDAQ. But buyers receiving only 4.91%( HYG etf) are
    being compensated very little for the risk that they are taking.
    Higher rates mean that a significant correction in stocks is inevitable

    • timbers says:

      A $4 trillion budget deficit? But wait…we’ve been told a $1.9 trillion deficit financed spending has never ever happened before ever. Well except when we did it yesterday and the day before and the before yesterday and the day before that and….

      • Rcohn says:

        The CBO has projected a budget deficit of 2.3t PLUS any additional deficits resulting from the stimulus bill.4t looks entirely in the ball park.

        • Happy1 says:

          +green new deal
          +student loan forgiveness
          +Medicare for all

          If something can not continue indefinitely, it won’t

        • Conan Dillon says:


          Medicare for all would reduce the deficit not increase it.

        • Happy1 says:

          @ Conan Dillion

          Medicare for all would likely decrease medical costs for all (as well as quality of care in all likelihood), but would vastly increase Federal spending and therefore the deficit by any calculation from any independent party, see Obamacare as a small scale example, not remotely neutral to Federal spending.

      • Old school says:

        I think that’s back to back deficits of $4 trillion. That’s $8 trillion or about $25,000 per US citizen, or maybe in the $50,000 range per tax payer.

        Probably going to be paid back by financial repression. A few more years where a million bucks will get you a $10,000 nominal income.

    • nick kelly says:

      As a Canadian, who is used to and considers it normal for a mortgage to have a term (usually max five years) before the interest rate resets, I find it almost incredible that any bank would commit to 30 years at these rates that are possibly the lowest real rates in history. (A UK banker has said ‘lowest in 5000 years’)

      I assume there is a perception of a parachute or Fed emergency aid when rates rise.

      • keppered says:

        The note gets sold once or twice as a mortgage securities ( yes was a no no not to long ago because of the horrible damage it did to the housing markets but now it’s full speed ahead Wall Street and waa laa.
        Most aren’t looking up for a rescue parachute this time. That is if the survived the last onslaught, sad many now were to young to know of it.

      • Wolf Richter says:

        nick kelly,

        Most of the 30-year mortgages are dumped into the lap of Government Sponsored Enterprises, such as Fannie Mae or Freddie Mac, or government agencies such as Ginnie Mae or the Veterans Administration. Banks can securitize the remaining mortgages that don’t qualify for government backing (too big, etc.) into “private label” MBS and sell them to investors, such as pension funds.

        • Xavier Caveat says:

          Why is Fannie Mae stock worth 1/30th of what it was 15 years ago if the real estate bubble is bigger and vaster than then?

        • ru82 says:

          There is a chart out there, that shows since 2010, YOY, either 95% to 98% of all loans are bought are backed by the GSEs.

          Nick your right. Very few banks are willing to give out a 30 year loan at below 3% rates. To much risk.

      • Petunia says:

        The mortgage lender funds their mortgages at the ten year rate and lends at the thirty year rate, that’s the spread they make. They can do this because they know the average life of a mortgage is less than 10 years. Almost all the mortgages created in year 1 will be gone in year 10. The leftovers are a very small number, insignificant amount in terms of a mortgage pool.

        • C says:

          This isn’t entirely true. Mortgages are amortized……they front load the interest!

          Additionally, loans are funded primarily from REPO until securitized. This makes the spread even greater. To top this circle of life off the loans themselves can be used as collateral in the secondary funding markets. Ask me how I know?

          But you’re spot on in that things are not as they seem.


        • Petunia says:


          I worked at Bear Stearns before subprime. By the time they blew up, they were funding in the repo markets, until the day no one would lend to them any more. The rest is history.

          Front ending the amortization is a shady thing to do, but nothing surprises me anymore. The mortgage business is now like the used car business. Good luck out there borrowers.

      • Swamp Creature says:

        The mortgages never actually last the 30 years. They usually get paid off or refinanced in 7 years, average. That’s why they track the 10 year treasury rate + 1 1/2% or so.

        • RightNYer says:

          Yes, but if the Fed loses control of rates, and they increase steeply, housing prices will decrease such that many people will be underwater, and won’t be willing to sell.

        • Swamp Creature says:

          That could happen. I got caught up in the Volcker interest rate squeeze in 1981-1983 and wound up staying in my home for 21 years before moving. It took almost that long to get into the black. Current buyers will have to wait 10 years just to break even.

      • rhodium says:

        This is equivalent to a huge wealth transfer, it’s just that the dummies who buy these securities think it can be unwound. Financial repression is working, but more like a spring storing tension. These people are going to get whacked in the face with the spring one of these days. Waiting for like just about a decade now…. It has to be a very tight spring after all this time.

        • Petunia says:

          Even the tranches going out into the first year of a mortgage pool are a death trap now.

        • Old school says:

          Some smart people I am reading think assets are going to deflate later this year with stocks getting crushed and ten year back to nearly zero before Fed runs balance sheet to $30 trillion and then we are through with this cycle and then it’s inflation’s turn and rates will rise whether Fed wants them to or not. A lot of smart money people are holding gold and bitcoin in their personal accounts. Always have to have some cash as number one priority. Can’t run out of that.

      • nick kelly says:

        PS: no doubt no one is staying in a 30 year in this 10 year period or so of constantly falling rates.
        I am positing a rising rate.

        Everyone does a refi to get the lower rate.
        Question is: who would refi into a higher rate?
        If mortgage rates were to return to the average of the last 100 years, an existing 30 yr fixed would be a prized asset which the owner would never pay off and a buyer would assume if possible. That is the trap for the lender, public or private.

        • Petunia says:

          A landlord would refi at a higher rate if he needs the cash for other deals and the rent covers the refi. Or someone who has more income than savings and needs the cash.

    • Thomas Roberts says:


      This is my take of the situation.

      Average people in America and most developed countries, have protection from bank failure for savings. Everybody else and those with enough money will have to find other ways to safeguard money. Right now, there is too much money in savings and investments across the world (mostly by top 10%) and as this this situation spirals out of control, there will be more scams, bubbles and eventually the rate of returns on investments should logically go negative. The treasury yields (if you see them as safe) can be a good safety asset. As those with alot of money should spread it around, bonds are seen as a safe investment. A rich person in America might have the full 250k in their savings that’s protected, after that they have to decide whether it’s a good time and what percent of holdings to put in stock market. Other than bonds there is not many options left. Precious metals would be difficult to store in significant volume for those rich enough and the precious metal vaults of the world massively sell more paper gold than they actually possess. The main remaining practical option is real estate, but that is very risky and potentially hard to manage for those rich enough. I can see many states charging special taxes for those using vacant land as investments in near future.

      • keppered says:

        Who am I trying to envision with this? Anyone who has k250 to use as play money in a bank is rotating that amount or close to it as a stop gap measure against bank failure while spending that amount on a weekly if not bi-weekly living expenses. The bank is only obligated to cover maybe 12 – 14% of that FDIC insured k250.
        So for most it’s a stupid non starter to store that kind of wealth in a saving institution.
        As for a rich person still in the stock market casino perhaps as a hobby or kicks and giggles.
        A rich person invested in bonds? Oh stop it.
        A rich person invested in land and precious metals very likely.
        The Gates boy the one that born after his older sister is rich and he just became the largest owner of farmland in the United States. Yes the largest acreage wise.
        Your argument is directed towards upper class plebs.
        Most I believe aren’t following this nonsense.

        • Happy1 says:

          The wealthy are majority owners of Muni bonds because of their tax free status. And older people are disproportionately wealthy and also disproportionately invested in bonds. I don’t have numbers, but would bet bonds are owned by the wealthy in the same proportion as other relatively safe haven’s like gold and property.

        • Jon says:

          I am not rich but heavily invested in stocks market and bitcoins.
          Some real estate and pm

          Btc n stock market has been great so far.

          We have the fed backstop and id keep playing although I have absolutely no confidence in any of thr assets I play own including real estate

          Everything is bubblicious and would come crashing down one day for sure

          Till then I’d enjoy the show and even be dead before that

          People who own certain kind of assets are biased usually and think it won’t come down but I am no fool.

        • RightNYer says:

          With all due respect, are you no fool? You seem pretty confident that it’ll come crashing down after you’re dead. What makes you think it won’t be next year? Would you be able to weather a 60% drop in the value of your stocks?

        • RightNYer says:

          Jon, I want to clarify that I didn’t mean it as an insult. I just keep getting this sinking feeling our whole foundation is on quicksand, and that no one knows what to do.

        • Thomas Roberts says:

          There are many potential issues with investing in real estate though, such as is your area investment worthy and is it a good time to buy or will the value soon drop. The big issue with large investors, especially out of state and foreign investors, is that they could get hit with special taxes (especially on undeveloped land). The gates family might regret those land purchases if property taxes triple and there is a large land transfer fee. For RE involving actual housing, new taxes would be more difficult to implement in ways that couldn’t be transferred to tenants, but there are ways to do that. If only large out of state owners had to pay these taxes then it would be more difficult to pass on taxes to tenants as the out of staters would have to compete with those not charging the taxes. Quite alot of things like this could happen and while America likes to have loopholes that the rich can circumvent, loopholes are easy to close. Predicting what happens next is a guessing game at this point. But RE, like the stock market, isn’t some magic money tree.

      • YuShan says:

        “Precious metals would be difficult to store in significant volume for those rich enough and the precious metal vaults of the world massively sell more paper gold than they actually possess.”

        It’s actually very easy, even for small investors. You can buy allocated physical gold in a vault at Bullionvault, Goldmoney, Perth Mint etc. YOU have legal title to the gold itself (unlike paper gold or gold in a bank). They don’t lend it out. Bullionvault is audited daily and storage cost is very low (0.12% annually for gold).

        • Lisa_Hooker says:

          Legal title for physical gold on the other side of the world is not gold, it is a paper receipt at best, an electronic bookkeeping entry like bitcoin at worst.

        • YuShan says:


          No. If you pay a vault operator to store physical gold for you is is legally your gold.

        • Lisa_Hooker says:

          If there are problems you can travel to the jurisdiction of the operator, hire an attorney to present your case, and if you get a judgement for recovery petition the local police to TRY to obtain “your” gold.

          Again, you don’t have any gold – you have a “legal” claim on gold – somewhere.

        • Swamp Creature says:

          The only gold I would want to hold is that which I can have in my physical possession. The hell with these paper receipts. Too many scam artists out there.

        • Mr. House says:

          Possession is 9/10’s of the law. That saying didn’t appear out of nowhere. Let me ask you this, have the past 12 years strengthened your view of the law? Do you honestly believe we are ruled by men, or laws?

        • VintageVNvet says:

          Leas a hook has this one correct YS:
          If you have never been ”in custody” of law enforcement personnel, ya just cannot understand the difference between the law(s) and law enforcement systems.
          It is HUGE,,, and requires a ton of money and/or lawyers/gun slingers, etc., for any individual to obtain ”justice” of any kind.
          As a law student for a few months many decades ago, this was explained only by the constitutional law professor who had actually worked in the legal system for several decades before he went to law school,,, and had dedicated the rest of his years to trying to improve the USA legal system, kinda like a certain ”knight of olde who was famous for jousting with windmills.”
          Been doing my best to stay out of jail since, with only mixed results: good in the ”good old boy network” of my the area of my youth where I was a known entity; not so good elsewhere.
          IOW ys, there really is no way anyone should consider that they certainly/permanently own gold, or silver or real estate or really anything of any intrinsic value far far away.

        • YuShan says:

          Like you should never park your car in a car park, because if the car park operator goes bust you lose your car?

        • Thomas Roberts says:


          A very small investor can store actual physical precious metals in many places. The very rich could probably own their own vaults. Those in between though, have to use someone’s else’s vault though. It’s known to be a fact that the gold vaults of the world have way more paper claims for their gold then actual gold in their vaults. No matter what, they can charge huge amount to get that gold out of the vaults, if too many try to withdraw, the question is who is getting theirs? Car parking is a bad comparison, because you actually own your car. With gold vaults, you don’t, you have an IOU.

          You might be asking what if I own a particular piece of gold in a vault. But, you may not realize that several others might have a paper claim to that same piece. Say you actually deposit a piece of gold, that vault may actually be selling shares of it. In general, if you don’t own the gold vault, you cannot trust the gold vault. Alot of vaults also have less gold than they claim.

        • Thomas Roberts says:

          There are, some actually trustworthy precious metal vaults out there, but, how do you know which one is safe?

        • YuShan says:

          @Thomas Roberts

          “With gold vaults, you don’t, you have an IOU.”

          NO. With the ones I mentioned (Bullionvault, Goldmoney, Perth Mint) you own the gold outright. Its not an IOU, it’s allocated gold. That was my whole point.

          Check them out if you don’t believe me.

        • keppered says:

          Aren’t you that typist from YuShan always worried what little Johnny is doing in stead of paying attention to the way the gold markets work?

      • RightNYer says:

        There’s only “too much savings” because central banks have created so much money and made it that way.

        • YuShan says:

          Yes, that’s the “savings glut” for you. If there were too much savings, then why did the Fed just print $T5 to fund new government debt?

        • RightNYer says:

          YuShan, yes. I think the definition of chutzpah should be changed from the historical “The boy who kills his parents and begs for mercy because he’s an orphan” to “The central banker who prints trillions of dollars and then says that interest rates are low because of a glut of dollars.”

        • Thomas Roberts says:


          Someone’s debt is someone’s savings. There is way too much savings (counting investments, unfortunately it’s not very well spread) and debt in the world currently.

          Right now, when the actual global economy isn’t really growing the question is why should there be any returns on investments. Right now, many asset classes are being simply bid up in a bubble. Some RE is becoming legitimately more valuable, because of societal changes, however that means other land in a non growing economy should drop in value. The stock market and investments cannot forever grow faster than the actual economy.

          When a person saves up money or invests, they are temporarily forgoing spending in the present in an attempt to spend the same or more in the future. The question is whether in a non growing economy that doesn’t have any need for that savings or investment, should you even get the full amount you put in back? On average, I would say no, many investments will make money, even more will lose. If you spread your money around without very careful investment and planning, you will overall lose money and if you have someone manage this all for you, you will lose even more. You can put money in the bank, but it will slowly lose value because of inflation. Even if the value stayed the same and people saved up alot for awhile, when that money actually got spent, it would lose value. Even precious metals which if invested in would always hold some value and go up quite a lot, once the selling of gold outpaced the buying, the price would crash.

          Right now, most believe in Disney fairy-tales of putting away 1 dollar today will give you 10 (inflation adjusted) when you retire. But, it really shouldn’t be able to outgrow the actual economy (on average, in the long term). Instead, people will eventually get less than they put in because those who “invested” your money for decades took a bunch of it. Inflation, may hide some of it.

          For the average person the only viable options I see for retirement are your family supporting you and/or transfer payments (social security, would have to be raised over time) and other benefit programs. The average person continuing to have their money put into the stock market and the such will only result in even greater income inequality. At best (my guess) one last major wave could hit US stock market. After that it will be pretty downhill for average person.

          Right now, most of finance involves the average person trying to build a retirement and the rich trying to get that money and all the remaining money and assets in the world. At the same time, that money on paper grows far more massively than it actually is. The average person no longer buying into financial sccamms, would greatly help reduce income inequality.

      • Rcohn says:

        Yesterday I had a conversation with a good friend of mine. He is a graduate of Harvard and Harvard Business School, was a drug analyst for 20 years and a stock derivative trader for over 25 years, so no one would refer to him as financially naive.
        He is concerned about holding any monies in any of the large banks and is even concerned about his substantial cash balances at Treasury Direct . I tried to hold his hand and told him to worry about other things. But later I thought about this. Why is an investor who understands the financial markets better than 99% of the people on Wall St. and who has made very substantial monies worried about the very basis of our banking system . So many events have happened in the last few years that I thought was impossible that maybe his fears might just not be so ridiculous.
        How many people predicted a squeeze of hundred times in GME a year ago?
        How many people predicted that spot natural gas in Texas would rise 109 times in just a few days?

    • Wolf Richter says:

      If you adjust yield for CPI (=1.4%), the 20-year and 30-year real yields are positive.

      What you’re citing as “real yields” is based on TIPS market prices.

      • Jon says:

        Just wait
        The real estate would come down in due time and especially where the market is very hot )
        This time is different but effects are same:)

      • Rcohn says:

        Yes , those numbers were derived using TIPS .
        But using a CPI of 1.4% is to say the least unrealistic and backwards looking and is not characteristic of your usual fine analysis.

        • Wolf Richter says:

          Yes, understood. I just wanted to clarify where this came from because it was kind of confusing otherwise.

          Inflation expectations among consumers is even higher than in the TIPS market. NY Fed’s consumer survey shows a 1-year median expectation of 3.03% with a 3-year median point prediction of over 4%.

      • Swamp Creature says:


        Even taking your CPI figures that’s a lot of risk (falling bond prices) to get a measly .25 or .5% return. I still can;t understand why anyone would tie up their money for that long a period when their upside is limited and their downside is huge.

        • Cas127 says:

          They are counting on NIRP making its US debut.

          Every time we think DC couldn’t sink (the interest rate) lower…

          Basically USD lenders are living with an abusive spouse, telling themselves it will never happen again as the G slips on the wife beater…

          Alternatively, think of it as “Brokebuck Mountain”…”I wish I knew how to quit yuu.”

        • Old school says:

          The interest rates on treasuries, investment grade and stock dividends on SP500 are approximately inflation rate. Retirees with thirty year time horizon going to be looking at about a 3% draw down including dividends and that’s assuming you don’t make mistakes. Might take 2% drawdown to make it all work out.

      • Breakevens are making new highs, high B/Es are not good for TIP buyers.

      • NBay says:


        The days of buying TIPS at auction for below par and getting 2.5 or 1.25% appear to be long gone.

    • rich says:

      “So who is going to buy bonds to finance the estimated $ 4 +trillion Federal deficit . At the above negative real yields , the answer is basically ONLY the FED”

      So who is buying sub-3% mortgages? Same answer, “basically ONLY the FED.” The Fed is sitting on over a trillion dollars worth of residential mortgage backed securities. If the Fed stopped buying, mortgage rates would easily crest over 4%, and the booming single family house market sales would fall. Rule of thumb is that for every percent the mortgage rate falls, house prices rise 10%. Why wouldn’t rising mortgage rates have the opposite effect?

      • Old school says:

        We are in the doom loop of fiat. Addicted to debt, Janet Yellen tells us a $2 trillion deficit is not enough, we need $4 trillion. Stock prices, house prices, college prices even car prices are all dependent on the debt bubble expanding. It’s where you always end up with fiat. It’s not that difficult. We all had rather consume than produce. Money printing gives a wealthy nation that illusion for a while.

        • Anthony A. says:

          Everyone buys until you run out of stuff to buy because you have nowhere to put it. My brother-in-law has 9 flat screen TV’s in his huge house. He can’t find a spot for another one.

          Oh, he has three cars and only one is being driven.

          Lucky guy!!

        • Cas127 says:

          Anthony A,

          Just for the heck of it…what does he do for a living…and in what metro.

          I ask, because in Debtopolis it isn’t hard to live like a millionaire on a thousandaire’s salary.

        • Anthony A. says:

          Cas127, he’s a retired millionaire oil co. exec. living north side of Houston. He’s one of the lucky ones who got out in time.

        • Cas127 says:


          He must have been really lucky.

          From 1985 to 2003, oil industry ranged from disaster to meh.

          From 2003 to 2013 was the boom. Oil went from sub $25 to $100+. This was the time when real money could be made.

          Post 2014, though, pretty much downhill for oil industry, with hundreds of corporate bankruptcies. Prices fell from $100 to about $30 (excluding Covid implosion).

          Oil is a very volatile industry.

          That oil exec really threaded the needle.

        • Anthony A. says:

          He did 40+ years at Shell and was Sr VP of Lubricants at the end. He was a Chem Eng that developed several oils for aircraft engines then went up the line in sales and marketing. Got out when Shell sold that business in mid 2000’s.

          He truly was in the right place at the right time and was pretty savvy.

    • Spencer B Hall says:

      re: “The only way to make a “real” return at current bond prices prices is to have deflation”

      NO, the only way to return to real rates is for Congress to drive the banks out of the savings business. I.e., the velocity of circulation is destroyed as bank-held savings increase. Banks don’t lend deposits. Deposits are the result of lending. So, $15,000,000,000,000 in monetary savings is indeed frozen.

      And savings flowing through the nonbanks never leaves the system in the first place. There is just an exchange in existing bank deposits in the payment’ system.

      • Spencer B Hall says:

        The “Taper Tantrum” is prima facie evidence (which I predicted). The FDIC reduced deposit insurance from unlimited transaction’s insurance to $250,000 (which was increased from $100,000 in 2008).

    • Grammar Nazi says:

      80% of all trade is done using US Dollars. Its the best option available at the moment….

  6. Paulo says:

    1.21% ??

    Much better to purchase appreciating assets; anything physical that might hold value or has the potential to appreciate.

    regarding: but mortgage rates are only going higher with Treasuries at these rates.

    I agree, but higher mortgage rates means lower RE prices will accordingly follow. This all makes sense if people use cash and don’t finance.

    I would buy farm land in the kind of place people would choose to flee. The big push into Idaho and Montana suggests it is already happening for a variety of reasons. That it is known, indicates it is already too late for those states and folks should look elsewhere, imho.


    • WES says:

      I think I would have rather held a gold bar than a US treasury bond, over the last 20 years.

      I don’t know what interest rate gold pays (I know gold doesn’t actually pay any intetest!) but since 2000, gold’s price rise (converted into an annual interest rate) has to be much higher than 20 years of US treasury interest!

      • YuShan says:

        “I don’t know what interest rate gold pays (I know gold doesn’t actually pay any intetest!)”

        It does pay interest if you lend it out. Central banks and institutions do this. I don’t know if individuals can do this in an easy way, but of course this exposes you to counterparty risk, the avoidance of which is the whole point of owning physical gold!

    • Memento mori says:

      If you look at the real estate prices during the great inflation of the 70s they didn’t come down despite high interest rates so I am not sure why would they crash this time.
      Theoretically, if inflation is high, shouldn’t houses be a form of protection from it?
      I wonder to what extent people are smelling a rat with multiple offers and very little inventory right now, what better inflation play than locking in a 30 year low mortgage on an appreciating asset?

      • YuShan says:

        Without having checked the actual data…. (perhaps an idea for a future Wolfstreet post?), I think in the 1970’s, houses were financed with smaller mortgages than today, so mortgage rates were probably a bit less important for affordability than they are now.

        In the early 1970’s, mortgage rates (30yr) were already at about 7.5%, before big inflation started. Today they are at 2.75%. If rates go up by even a few percent, that would quickly double mortgage rates. At 2.75% housing is already unaffordable for many, so at double the rate who can buy at current prices? Unless wages double (not a chance).

        • Jon says:

          Real estate as well as stock market can’t bear higher interest rate

        • Apple says:

          Buying a house with an assumable mortgage was common in the late 70’s/early 80’s.

        • ru82 says:

          You are correct YuShan, higher rates will make it harder for people to buy current house prices.

          I just don’t see rates even getting to 5% anytime soon. Last time they were above 5 was in 2009. Why will rates stay low.
          Rising rates would really put the hurt on the federal government spending. Also a lot of companies have taken out huge amounts of debt to buy stocks back.

          Everyone wonders how long we can stay at ZIRP. Well Japan started ZIRP in 1996 or 25 years ago. The U.S. is only at year 10. We are 15 years behind Japan.

          Thus we probably need to watch Japan to know when ZIRP fails?

      • Swamp Creature says:

        “what better inflation play than locking in a 30 year low mortgage on an appreciating asset?”

        Sounds too good to be true. Its a trap.

        Real estate prices are NOT going up because of a good economy. We’re in a DEPRESSION!!! At least here in the Swamp.

        Prices are going up because of the fallout from the 2017 Tax bill which made a paid up home a good rental investment, cutting down the amount of listings, and creating other distortions in the free market. Add in the money printing, asset inflation, devaluation of the dollar, ultra low interest rates and you get this phony real estate market.

        This will all come to and end for a different reason than in 2006/2007 but the results will be the same. Foreclosures, Mortgage bank failures etc.

        When these people leverage their homes to the max and the prices drop 20 – 30% they will be underwater and face the same fate as those in 2008/2009. What good will that 3% 30 year Mortgage do them if they can’t sell and can’t move to a new job?

        • RightNYer says:

          Swamp Creature, I’m not familiar with all aspects of the 2017 tax law. How did it affect rental homes? I know it negatively impacted owner-occupied homes in high property tax states.

        • Happy1 says:

          The 2017 tax bill CORRECTED distortions in the market created by previous tax policy (SALT and excessively generous mortgage deduction).

        • Swamp Creature says:

          The tax law of 2017 pushed a lot of people onto standard deduction vs itemized. People who had their homes paid off found that they could rent them out and make a nice income. The hell with selling. This cut down the number of houses that would have been on the market. Thus pushing up prices. So they made out big time. Higher income and higher prices. Rents are holding up pretty well even in the pandemic.

        • RightNYer says:

          Right, I understand the tax deduction by effectively removing the desirability of itemizing, but I still don” see how that affects the rental market. Why would you be more likely to rent your house out under that tax regime?

        • Swamp Creature says:


          Once you have paid off a lot of the mortgage or all of it you lose the tax advantage of the Interest deduction. The 2017 tax law accelerated this process. Pushed people onto stnd ded. So you pay off the loan. Then you need more deductions. A rental home has tax benefits, depreciation, expenses, etc to offset the loss of the itemized deductions. “Schedule E” I believe. I don’t own rental property but I can see why people would rent their houses out now more than ever. Its a good investment. The 2017 tax bill made it less advantageous to be a owner occupied homeowner (lost deductions) and better to be an absentee landloard (kept writoffs).

        • Swamp Creature says:

          I may add that the 2017 tax bill was a disaster for the middle class especially those in the blue states. If you live in Maryland and went off itemized deductions and went to standard deduction your Maryland taxes skyrocketed. Offset much of the tax cuts which went to big corporations and oversea tax havens.

          On the Fed level you lost your medical ded, state & local taxes ded, and charitable ded. Trump listened to those s$itheads from Goldman Sachs, Gary … , House Ways & Means Kevin Brady, Paul Ryan to draft the tax bill. This was one of the many blunders of his administration.

        • Swamp Creature says:


          Why it is it OK to change the rules in the middle of the game. People bought houses with the expectation of being able to deduct SALT taxes. The deductions were factored into the price they were willing to pay for the house. Why is it now OK to screw them over just because they happen to live in a Blue state. And for what gain ??

        • Happy1 says:

          @ Swamp Creature

          Tax laws change all the time. Just because something has existed for while doesn’t make it fair of good public policy.

          Is it fair for people in low tax states to subsidize SALT and mortgage deduction that overwhelmingly benefit the top 10% in high tax locations? Is it good policy to encourage states to have high taxes knowing that the Fed will kick in to compensate? And I’m saying this as someone who is also a net loser on the SALT changes.

          Best policy is low rates and few deductions. That leaves to less shenanigans and simpler taxes for everyone.

        • ru82 says:

          Swamp…a lot of that makes sense. Also the fact that millies are now wanting to have families and are actually buying houses. They see house prices rising and buying as an investment. i.e.

          There is a lot of talk about MMT. $1000 or $2000 a month. It that happens, I doubt there will be any houses sub $300k. Why?

          If a low income person suddenly gets $2k a month, why not buy a house with the $2k. They could get $300k house for $1500 a month and have 500 left to spend. Plus they will not have a rent payment anymore.

        • Swamp Creature says:


          They took away all your deductions and put you on stnd deduction. Now the new Admin is getting ready to raise your tax rates. Also, they made it easier for the IRS to do your taxes before you even lift a finger to do yours. Better make sure your numbers are correct. They’ve got all your information already. Its all in their computers for an automatic audit on everyone.

          I’ve heard that BS about Red low tax states subsidizing the high tax Blue states a dozen times. Those high tax states pay way more to the Fed government than they get back in benefits.

        • RightNYer says:

          Swamp Creature, with all due respect, of all the memes on the Internet, this is one of the most intellectually dishonest.

          States don’t subsidize states at all. Nearly all of the federal spending that takes place is individual transfer payments (Social Security, Medicare, Medicaid, etc.). Wealthy people subsidize the poor, and currently working people subsidize the retired. That’s how it works, and where any of those people happen to live is irrelevant.

        • Old school says:

          Too much house has taken down a lot of people in hard times. You got to make the whole nut including utilities, taxes and insurance every month for 180 to 360 months whether you have a job or not.

        • Seen it all before, Bob says:

          Swamp Creature has a very good point.

          There is a motivation to hold onto a paid-off house and rent it rather than selling.

          1) You won’t have to pay a large windfall capital gains on profits over 250K. It is 20%.
          2) Unlike a primary home, you can fully deduct all expenses including property taxes, any interest, and repairs. You can also depreciate the house. These are all deducted from any rental income. I know most with new rentals who pay no taxes on rental income since the deductions and depreciation match the income.
          3) The rental house has historically (since 2000) returned an increase in value higher than inflation. Sometimes much higher. Can that continue?

          The hassles for landlords has been mostly due to the quality of renter who may not care how they treat your investment.

          1) Trashed houses that cost tens of thousands in money and time to repair. That damage deposit isn’t nearly enough.
          2) Recently, during Covid, renters who do not pay rent and not likely to pay back-rent without large legal expenses.
          3) Even before Covid, it was costly to evict for non-payment.
          4) Time and money to maintain the property. For a primary home, you live there and can stop a leak before costly damage is done. If you don’t live there, a renter may be less likely to report a costly issue for fear of rent increases. I stay busy enough repairing and improving my primary home. I’d have to pay a property manager (tax deductible) to maintain a fleet of rentals.

          I’d rent to someone I know and trust. Most landlords I know, require a credit check for any tenants at a minimum.

          My brother was a landlord for a decade in the early 2000’s. He said that he would never do it again because he had terrible tenants. He sold in 2006 so he just paid the windfall in taxes. If he had sold in 2011, he would have experienced massive losses.

      • Implicit says:

        There is a disconnect between the average price of a home and the average income a person makes. Eventually the real estate market will have to come back down to reality.

        • Swamp Creature says:

          Its up to ten times annual income. Same as just before the 2008 meltdown.

        • Swamp Creature says:

          Not without a lot of pain

          Houses in the Swamp are going under contract for 5% or more over the appraised value in many cases. The buyer will have to kick in cash at settlement if they want the house. No more “No money down” deals. The additional cash they have to come up with doesn’t get them squat. If prices decline they will be underwater in a heartbeat. Welcome 2008 redux.

    • YuShan says:


      “Much better to purchase appreciating assets; anything physical that might hold value or has the potential to appreciate.”

      Unfortunately it’s not that simple. For example in the stockmarket, returns of the past decennium were really driven by P/E expansion. When that mean-reverts, the market can come down a lot, even as profits rise.

      In addition to that, corporate balancesheets are at record leverage. That helps their P/E in good times, but if they need to deleverage it works the other way.

      And then there is record margin debt and people using home equity to finance stocks. etc.

      In other words, there are so many layers of leverage that are stacked on top of each other. When all this goes into reverse, it will eclipse the actual real value creation of these companies.

      If you look at profits over many decades, it is remarkably consistent. The biggest contributor to market returns over a limited period is really multiples expansion/ contraction.

      For this reason, you cannot just say: let’s buy something “real” and I will be OK. Valuations and the amount of leverage in the system matters.

      • roddy6667 says:

        I owned real estate in CT in the late Eighties that lost 50% of its value in the early Nineties. It took a decade for market value to return to the 1988 prices. I was a Realtor. I left the market because selling homes was no different than peddling rapidly depreciating baubles like cars and electronics. Buying something “real” only works if you don’t buy near the top of a roller coaster market.

      • RightNYer says:

        YuShan, yes, exactly. I keep hearing people say that inflation is coming and “stocks in quality companies with healthy balance sheets are good protection against inflation.”

        The issue is that even the “healthy” companies with unlevered balance sheets are dependent on those that “unhealthy.”

        For example, Microsoft. It makes a ton of money from its software as a service and cloud infrastructure, and its products have a relatively low marginal cost to produce. But how many of its customers are zombie companies with excessively high leverage? The same is true for Google and Facebook’s advertising revenue.

        That’s the thing that tech bulls don’t seem to get. The tech companies’ fortunes are tied to the rest of the economy in the final analysis. If the economy starts raveling, big tech won’t be spared.

        • Jon says:

          You hit the nail
          People don’t understand how interconnect things are

        • YuShan says:

          Recently, I saw a former top guy from Facebook explaining that from every $1 spend by these hot startups, IPOs etc that only burn money, $0.40 of that ends up at Amazon, Facebook or Google.

      • Happy1 says:

        Also profit margins are near record levels, these will revert to mean and cut stock valuation also.

        • timbers says:

          “Also profit margins are near record levels, these will revert to mean and cut stock valuation also.”

          Can’t really assume that, especially given the trend is for profit margins to increase not decrease. Change in govt policy will be needed to reverse. Probably due to govt policy of wage suppression (importing cheap labor, reducing workers rights, increasing corporate power and monopoly).

    • Lisa_Hooker says:

      Selling your home in California and moving to Montana was 30 years ago.

    • Brant Lee says:

      Yes, any physical useful item should hold its value now. I was buying old well made U.S., German tools for the last few years on Ebay. Now they are getting ultra-pricey, people are catching on.

      What’s worse, the availability of many needed things may not always be so handy in a depressed economy. Toilet paper may be the last thing we’re worried about.

    • Depth Charge says:

      “The big push into Idaho and Montana suggests it is already happening for a variety of reasons.”

      Prices are already topped out in these places. Buying real estate or land right now is a fool’s errand. It’s like buying at the peak in 2006, but worse.

  7. timbers says:

    Inflation of 4% to 5% is so last decade.

    My gut tells me a better measure of inflation is the average of Housing+healthcare+cars. Maybe about 10% or a bit less which is what housing is presently rising at year over year?

    Funny all three of the items that likely provide a truer account of inflation that construct called CPI – housing/healthcare/cars – the Fed has either removed from it’s inflation reporting or neutered into gobbledygook hedonic meaninglessness.

    • Happy1 says:

      I could not agree more. Add college tuition and I agree completely, the major items that most households are spending on.

      • p coyle says:

        don’t forget food. people tend to need it, and it is getting more expensive too, although perhaps not as quickly as those big ticket items.

  8. Yort says:

    1.21% ten year treasury yield is approaching the SP500 SPY 1.40% dividend yield. Hmmm, which investment is safer?

    SP500 earnings yield is around 3.1%. SP500 is about 3940, so another 1.5% by end of next week to hit magical rounded number 4,000. Then another 10% from there to to 4,400. Point being, not much meat the bone for the risk taken, as note that FT reported the Fed asked the banks last Friday to stress test the SP500 crashing 55%. 4,000 to 1,800 is a 55% drop…yet not saying it is going to happen, or even the Fed will allow it anytime soon, yet it is facinating they ask the banks to stress test a 55% collapse as that is about exactly where it should have crashed to if the Fed had not bailed out the top 1% last year.

    So right now the Fed is happy to allow Crypto, TSLA, and other imaginary investments to absorb billions of the QE to keep it out to the actual stock market and the real economy, but once that falls apart and that liquidity flow goes into “real things” that people actually need, that is the point where the Fed might allow the markets to collapse as a mechanism to control the out of control inflation as they can’t raise rates, yet letting the markets collapse is a wise option IMHO, as that would cause deflation almost immediately…

    Remember, the Fed works for the banks, not Wall Street or the top 1%. With the Fed and Treasury now tied at the hip and working together to give out trillions to the bottom 99%, not sure they will bail out the top 1% when they allow the markets to finally crash at the point they need it to “fix” inequality, inflation, etc. Keep an eye on J-Pow’s long $60 million portfolio as I’m sure he will get out before the music stops…not so much everyone else…

    • keppered says:

      The federal Reserve owners are not the top 1%?
      Maybe that was a typo?

    • WES says:

      I think India is going to ban crypto soon. Their government probably doesn’t like the competition! They didn’t do very well getting their hands on temple gold! Don’t Indians trust their government?

      • keppered says:

        India has already banned all crypto use of any kind.
        On another point they did not ban Blockchain.
        Silly as Blockchain technology is the weak link of crypto currency.
        Although it is superior in many other applications.
        Buy into the blockchain not the funny money.

        • ru82 says:

          Isn’t it funny how a guy creates a very good blockchain technique and says it is a currency and millions believe him.

          That is what astounds me!

          If you look back in history, I believe at one time shells were currency for some pacific island…until it was not.

          Technology changes all the time. What if somebody else comes up with a better currency idea 3 years from now?

          Nobody saw Bitcoin coming….it could happen.

    • YuShan says:

      I have no doubt that Powell and others belonging to the 0.1% are not voluntarily going to do anything that makes themselves poorer. That’s only human. Who cares about the 50% poor sods that get killed by inflation if the alternative is that your own stock portfolio goes down?

      However, the question is for how long this is still up to them to decide. IF inflation were to run persistently hot, the bond market will force their hand. And hubris among policy makers suggests to me that there is a significant risk that they will be (much) too late to reverse and will eventually be forced to raise rates by much more than anybody now anticipates, or totally lose control.

      Also, the idea that you can “inflate away” this amount of debt is a total fantasy imo. The debt erodes only slowly, but refinancing costs go up immediately with rising rates. You would have some chance pulling this off if you had a balanced budget, but deficits are only going to rise this decennium due to unfunded liabilities (entitlement spending going up massively).

      • rich says:

        Federal Reserve Chair Jay Powell: “I do want to begin by agreeing with your first point, which is the economy is far away from maximum employment and stable prices – and the balance sheet will be the size that it needs be to provide support to the economy. As you know, we’re currently buying assets. It’s a key part of what we’re doing in providing overall accommodation to the economy. That is our focus. We’re not thinking about shrinking the balance sheet, just to be clear…”

        Powell gives lip service to unemployment, but he’s really just inflating asset prices. It is not the unemployed who benefit from inflated asset prices.

        • timbers says:

          Inflation creates jobs. Powell said that. So we know it’s true. If we keep printing, the jobs will come.

          Remember a long time ago, in an economy far far away, something called GameStop I think it was?

          Imagine 100 new GameStop events every week – that’s when we will reach full employment via Powell’s program of 500,000 new day traders every month.

        • Lisa_Hooker says:

          Powell will soon have to rent some of those off-site storage spaces to stash all the low-yield assets he’s not using.

        • Trailer Trash says:

          “Inflation creates jobs. Powell said that.”

          The 1970s just called. They said stagflation does not create jobs, except for demolition companies. Powell must not remember the 70s and 80s. Too many coke-fueled frat parties, Mr Powell?

        • Depth Charge says:

          Jay Powell should be arrested on domestic terrorism charges for what he’s doing and has done. I guess 300,000 homeless in CA alone isn’t enough for him. Will 600,000 be the magic number? Maybe a cool million is needed? Somebody must stop this deranged lunatic and his cabal.

      • timbers says:

        You might already know this….The problem with “inflate away the debt” is that the policies that supposedly do that simultaneously encourage more debt, this defeating it’s very purpose and placing policy into a forever loop.

        • Lisa_Hooker says:

          timbers, are you sure you understand trickle-up poverty?

        • RightNYer says:

          Exactly. You even hear Yellen and some others in Biden’s administration say “Inflation is low, so there is never a better time to go big while borrowing costs are cheap.”

    • Poohbah of Doodah says:

      Useful Yort; thanks

    • MARK J says:

      Interesting theory, and not out of the question.

    • sunny129 says:

      During Bear Mkt following GFC, S&P fell nearly 60%!

    • Tom S. says:

      Totally agree, Yort. First inflation, then deflation.

  9. Crush the Peasants! says:

    This does not make a lot of sense. We have had inflation in the price of education, health care, stocks, automobiles, real estate, etc. whilst the 10 year UST yield has been dropping, and so the buyers of 10 year UST’s did not care aout that inflation. But they are concerned about the rising price of Blatz beer and Utz cheese balls?

    • keppered says:

      It may help to start viewing inflation as the falling value of a currency.
      In lieu of the general level of prices for goods and services rising.

      • timbers says:

        Yes. Although I’d prefer they just correct the CPI and be honest. I know – The HORROR!

  10. Jack says:

    I wouldn’t believe anything the Fed says, Jerome is in panic mode, since 2008 or even to the times of Greenspan these central bankers have made mistake after mistake, dire ones, the Dollar has fallen 15% with a falling inflation rate to 1.4. There is no long term real inflation, look at the Eurozone, all there is is short term inflation from manipulations, real inflation comes from higher wages, year after year, lets not mistake their smoke and mirrors, the type of inflation people may see is oil rising (manipulation), food rising from grains, thank Trump for asking China to buy so much (China took him for a ride, they just use their treasuries), also speculation. What I am trying to convey is the Fed & Gov want to scare people into spending, the problem is people are broke, they can’t pay their rent/mortgage, or choose not to, rates are rising just like stocks are rising, doesn’t mean it’s rational or warranted, if you notice everyone is talking about the Dollar demise, it’s gonna burn & become worthless, who spread this nonsense, the ruling class of the US hold Dollars, fund their military with Dollars, if the Dollar goes so will the US, not gonna happen, the yield will collapse to join the 2 year, the vaccines will be ineffective in my opinion, give it a month & see. All in all the Fed is done, they dug their own grave, the yields rising is a sign the lost total control, they are so fearful right now because it is they who drove people into a frenzy of panic regarding inflation but it had the wrong effect, instead of spend they thought F this I’ll buy assets, like stock in hyper bubble, like commodities or whatever, this will all blow up, stocks will collapse, yields will collapse, they will never get inflation until the whole scam is flushed out with all the bad debt. In what world can you have inflation when people are jobless, in debt to their eyeballs, can’t pay rent/mortgage, car payments, loan payments, in the fullness of time people will realise, Powell & his cronies thought they are smart, just like the announcement they would buy junk bonds never came but caused a massive rush into worthless junk bonds they did to the public, they will let inflation run hot was just a sick ploy to suggest it’s coming so go spend it, It all backfired cause he made it all worse, the US taxes the world with the Dollar, the world pays for the US military & standard of living, I wouldn’t believe a word of what Powell or his colleagues say, there will be no inflation, 15% Dollar fall should have brought inflation to 5% or more, deflation was so strong it had zero effect, everything else is a massive hyper bubble, property, stocks, commodities, most people believe inflation is coming, big inflation, what Powell should be thinking now is we are F—–, simply cuz it created no spending at all. This is a view to remember, remember what I said today, even though most would disagree wait and see, the amount of propaganda & manipulation that exists is truly amazing, this whole house of cards will collapse, people should prepare, cash is the best thing to hold right now, that is why they don’t want you to.

    • Lisa_Hooker says:

      @Jack – I enjoy your comments, but shorter sentences and paragraph breaks would be even more enjoyable and less taxing. If you would have deleted five periods the whole comment would have been a single sentence. Are you using voice to text?

      • Lisa_Hooker says:

        PS – I am very rarely an editorial fascist. My apologies if you feel they are in order.

        • Cas127 says:


          I agree and I don’t think it is fascist to make a suggestion.

          The point is to communicate and the reader is 50% of that equation.

          Big slugs of text are difficult to follow and often serve to bury rather than illuminate good ideas.

          The is especially true for the snaky weavings of economic policy where we are all trying to ferret out the hazy implications of half spied gvt actions.

          1) Bullet points provide bite size chunks of info, in a logical stepwise fashion.

          2) Really.

          3) Simple white space/paragraph breaks are the poor man’s bullet points. Also useful if you don’t want to read like a computer programmer.

      • pbfurn says:

        I totally agree. I scrolled down, noted the lack of paragraphs and scrolled onward.

    • Petunia says:

      I don’t disagree with you, but when I get my next stimulus check it will be spent on a nice new mattress. Inflation be damned.

  11. RickV says:

    The 10 Year 1/15/31 TIP .00125% is priced at 112.03. This computes to a yield of -1.036% for an implied 10 year inflation of 2.46%. There’s a lot of nervous investors out there willing to pay up for inflation protection.

  12. Thomas Roberts says:


    Is there some way to measure inflation vs monopoly power as the reason for the loss of the average persons buying power?

    • Wolf Richter says:

      The politically correct term is not “monopoly power,” but “pricing power.” ?

      The lack of “pricing power” in ecommerce has been cited as one of the reasons why CPI goods inflation has been low or negative over the years. But if you’re trying to get health insurance (CPI services inflation) in a place with only two health insurers, you’re in trouble.

      • Lisa_Hooker says:

        About 10% of the counties in the US have a single ACA insurer so it’s much simpler there. You just pay whatever they demand.

        • timbers says:

          Also Lisa, I think about half of the US has only 2 choices. Read that years ago. Probably worse now.

          A few years ago, the “it” public policy thingy with NPR Radio in Massachusetts was how to slow done healthcare inflation under RomneyCare (same thing as ACA but more generous…ironic that, no?).

          NPR would drone on and on with the latest most clever ideas on how to “bend the cost curve” on medical inflation. All tedious, complex, and doomed to fail.

          But they never….ever….allowed these words to cross their lips or be discussed on any way – universal single payer healthcare. Their tongues would burn if they uttered them, despite it’s proven world wide success where ever it’s been used.

          Who needs censorship when the media self-censors?

        • Trailer Trash says:

          It is unfortunate that health care policy discussion almost always ends up being about who is going to pay. The payment problem is the smallest part, but is a good diversion from how truly awful the system is.

          Clinical outcomes look bad compared to elsewhere. Even poor abused Cuba has a better infant mortality rate. We are only pieces of meat tossed onto the disassembly line. Question the doctors and be labeled a troublemaker, or follow orders and ignore the harm they are causing. Like children, patients are to be seen and not heard.

          Half of us are overtreated and the other half can’t get what they need. Physicians suck at diagnosing illness. Misdiagnosis rates are shocking. If car techs were as bad, no one would drive. Iatrogenic harm is one of the top five killers, but that category is not even shown on CDC charts.

          The whole system is organized for its own convenience. If patients can’t fit into the system, too bad for them. For example, when someone is sick enough for the Emergency Room, they need to rest. That means lying down. But the ER waiting room has only chairs. How is that “patient-oriented”?

          I know there are physicians that do good work (to the extent they are allowed), while so many others act like patients are icky, especially the sick ones. There are not enough good doctors to go around. So a few people get good care, and the rest are just tossed aside.

          The sad truth is the medical machine is rotten like so many other US institutions. Greed is good, but not for humans. The whole “pricing power” thing Mr Richter mentioned certainly plays a role.

          At some point people are going to have to challenge medical machine “pricing power” and take back control of our healthcare institutions. I hope it happens soon.

        • Depth Charge says:

          The healthcare scam has me thinking of ways to screw them back. I don’t have an employers’ plan so have to buy my own on the open market. The options are few, and the price is laughable. I’ve started to think that I should liquidate my bank account, turn about half of that into precious metals and the other half into mattress money, and just claim poverty so I can get Medicaid.

          I’m self-employed so I don’t get a paycheck stub weekly. I can easily go “low-income.” There’s got to be something better than paying close to $1,000 per month and getting nothing in return. Or maybe I just go naked and risk not getting care in the event of a heart attack or cancer? I don’t know what the answer is. Just thinking out loud here.

  13. Memento mori says:

    We are being played by semantics.
    Historically inflation was defined as a measure of increase in money supply not increase in price level which is a consequence of the former rather than cause.
    But defining inflation as an increase in price level, the government theft can carry on in a way that not one in million could spot .
    I tend to agree with the Austrian school that defines inflation as government expansion of the supply of money and credit. To call price increases inflation is to confuse the symptoms with the cause, and worse, to eliminate the term to describe the cause.
    Price increases are price increases. They occur for many reasons, some monetary most not.
    Further, the implication is that an X% increase in the money supply = an X% increase in all prices. This is also incorrect. Massive price distortions occur at the injection points for the new money & credit, called Cantillon effects.
    Those first in line for the new money & credit in effect get today’s goods and services based upon yesterday’s money supply. It takes time for those injections to ripple through the economy and cause widespread price increases. It’s a massive transfer of real goods and services from the masses to those at the front of the line…

    • timbers says:

      Interesting. But, isn’t the thing about QE and ZIRP being so very bad, is that it inflates the money mostly into the procession of the rich were it remains because they spend it on things rich folks buy, and doesn’t much trickle down to impact/raise the price and items used to report “inflation”?

    • rich says:

      Yeah, and the Fed doesn’t make much mention of the massive inflation of bitcoin, houses, luxury properties, stocks, collectible cars, lumber, etc.

    • Lisa_Hooker says:

      I see. So if the money supply were to decrease and prices continue to go up we wouldn’t have inflation. We would have???

    • Sam Lowry says:

      @Memento mori

      Thank you for making these much needed points. Central-bank fiat currency is the single largest act of theft from poor to rich on the planet. And it’s right in front of everyone’s faces. Yet people refuse to see it for what it is, because to do so is to draw into question the benevolence of our rulers.

      • Rcohn says:

        Less so from the poor to the rich , since government policies tend to give goodies to the poor , and more from the middle class to the rich.
        By collapsing interest rates to 5000 year lows , the FED has forced the middle class to become speculators. So far this idea has paid off, but when the inevitable sharp correction or bear market takes place , millions will lose trillions

        • Sam Lowry says:

          Monetary inflation is a transfer of wealth to those with privileged access to the freshly-printed money from those who are forced to use that money as money. There was a time when investors used to have to borrow the money for investment from savers, and compensate the savers in the form of interest. More than that, increasing economic productivity relative to the money in circulation used to drive the prices of things down, so even non-savers benefited economically.

          A bunch of lies and misrepresentations of history were foisted upon us to obfuscate this point (e.g. deflation is bad), but that’s an essay inappropriate for a comments section.

          “…since government policies tend to give goodies to the poor…” A misdirection. A bribe. They mostly use that freshly-printed money to subsidize politically-privileged businesses, bail out the soured assets of the investment bankers at book value, and wage a bunch of wars that have nothing to do with defense or the “export of democracy.”

          Blatant “quantitative easing” should have woken people up. For some reason it didn’t.

        • Depth Charge says:

          “Blatant “quantitative easing” should have woken people up. For some reason it didn’t.”

          Right. And notice how back in 2008 or so, with the first bailout, the FED had to “sell” their QE plans to Congresscritters in order to get the ok. Now they just do whatever they hell they want without even a thought. They are emboldened. Worse, they are the arsonist parading themselves as the firefighter.

  14. Mike says:

    The inflation/deflation question will determine which investment strategies will work and which ones won’t.
    I follow Dr Lacy Hunt, who posits that over indebtedness will lead to deflation unless the Federal Reserve act is amended, allowing the Fed to directly monetize the debt (at which point, he believes hyperinflation will ensue).
    Steven Van Metre suggests that QE is largely a duration swap (from longer dated UST to reserves) and that it will ultimately push rates lower and cause deflation (I find it hard to sum his his thesis without more study). Further, when primary dollars are buying ~$5B at Treasury auctions but the Fed wants ~$10B, they have to source more UST from other parties. This creates a strong bid for UST’s. Also, bank lending is still weak and lending standards are still tight.
    Jeff Snider makes the case that the EuroDollar system is broken. That because the US is now only about 25% of the world economy and dollars are used in over 2/3 of world trade transactions, the system is destined to have another dollar shortage/crisis.
    In any case, inflation is raising it’s ugly head again in certain sectors and that may generalize. But right now, the more compelling case for me is that rising yields are a counter trend and will be heading lower in the coming months.

    • YuShan says:

      What about a combination of CPI INflation and asset DEflation, i.e. the opposite of what we had?

      2020 has marked a significant change, where fiscal spending is now in the front seat. Everybody will now keep expecting free money and Yellen obliges. This will creep into the CPI and is already raising inflation expectations and yields.

      Rising yields beyond a certain point should deflate the asset bubbles because of problematic refinancing of debt, but not necessarily lower CPI inflation when fiscal spending continues. I also expect that the poorest 50% are going to demand higher wages. After all, the policy makers have now shown us that you can create money out of nowhere and spend without consequences. This mindset will stick until something breaks.

      • RightNYer says:

        Exactly. For most of the past 100 years of incurring debt, we did so with deficit spending, with the markets setting interest rates. There was at least this fantasy that we’d someday have to pay it back. Now, it’s clear that most of our “elites” have embraced MMT, with the Fed monetizing most new debt.

        Who would lend to us under those conditions? I don’t buy the “cleanest dirty shirt” argument.

      • Mike says:

        It’s a plausible theory. If you think CPI will rise more, I’d look at the savings rate (still higher than average @ 12.7%) and consumer debt (is stimulus being used to pay down debt or to fund more spending?). Also, it’s an open question if the lock downs destroy more aggregate demand than the stimulus or if the stimulus effects are greater than the effects of the lock downs. Moratoriums on many debt classes (rent, student loans, mortgages) are also a stimulus that will need to be ended.

        As for asset prices, if 2008 was the first quake in a Eurodollar crisis, the next quake will be stronger and the effect on asset prices will be commensurately higher.

    • Grammar Nazi says:

      if the USA had real capitalism where markets solved their own problems and the FED did noy dictate where supply and demand met prices would be way lower.

    • Old school says:

      I think Marc Faber and Jeff Gunlach both say you can’t know how it’s going to play out. They both are advocating a portfolio to handle both the deflation and inflation tail risks.

      Deflation you need cash and bonds. Inflation you need gold, real estate and stocks although stocks take a hit until inflation runs wild. In real terms it’s going to be hard for an investor to run in place the next ten years. You have to try to not get blown up by tail risks.

  15. Beardawg says:

    Bonds of any kind purchased beyond 2 Yrs will probably be subject to manipulation / devaluation as they are not likely to be enumerated in USD anymore.

  16. Mark says:

    The rat that I’m smelling is the putrid odor of oligarchy, wafting off Jay and Janet, These vultures exist to protect only their rich friends- and to stomp the rest of us into the dirt.

    God forbid the little people making any money ( or any interest on their hard earned money).

    What a country we’ve become.

    • Depth Charge says:


    • Swamp Creature says:

      Don’t complain. I just rolled over my 1 year CD for 37 basis points. When it matures I’ll be able to use the interest earned to buy a latte at Starbucks.

  17. Swamp Creature says:

    In spite of his comments to the contrary, look for Powell to copy the European CBs and push interest rates into negative territory to increase money velocity, and stop people from hoarding currency. If this creates a bank run they will step in and stop the run by limiting cash withdrawals to $300/week.

    • sunny129 says:

      “Look for Powell to copy the European CBs and push interest rates into negative territory..”

      Powell has stated he is unlikely to from ZRP to NRP b/c it hurt the US Banks. Fed pays interest for the money deposited by banks. In contrast ECB charges the banks! Look at the solvency of Banks in Europe vs here.

      FED is owned by banks. They just cannot afford to go NRP. Fed will save the Banking system before the mkts or any one else. Without Banks ( primary dealers) Treasury/Govt cannot function!

      • WES says:

        The Fed will never let US interest rates go “nominaly” negative because it would cause the commodity markets, priced in US dollars, to go into permanent “backwardation”!

        Because Europe and Japan are not the world’s major reserve currencies, they can get away with NIRP. The US can not!

        • sunny129 says:

          ‘the commodity markets, priced in US dollars, to go into permanent “backwardation”!


          The REAL rate is already negative, inflation adjusted over 12 months if not more!
          But look at charts of commodity ETfs like DBC, COM, COMT, DBA (Agri) and basic metals like copper (copx, scco), FCX, BHP, RIO etfs like VAW,PICK++ – They all near or close to 52 wk high!

          Reflation expectation is in the air! Bitcoin (whether one believes in it or NOT) is hitting close to 50K! yes with great volatility.

          ‘It’s an asset rapidly expanding its userbase, it’s acquiring monetary character daily as more of the old monetary system sees the opportunity to make a vig, in VISA and Mastercard’s case, or provide explosive returns for investors looking to hedge against the chaos of a ruling class gone equal parts crazy and moronic’

        • Swamp Creature says:

          Don;t put it past these lunatics to do just what I said.

  18. Willy2 says:

    – Rising yields is NOT a sign of inflation. It simply means that investors are pulling money out of low(er) yielding T-bonds and putting that money into other (higher yielding) asset classes like corporate bonds (hence the still falling corporate yields) and stocks.
    – As long as workers/employees don’t get wage increases at or above PRICE inflation (which is higher than reported) then there is not a chance on god’s green earth price inflation will be permanent. Just see what happened in the 1960s and 1970s.

    • sunny129 says:

      FROTHINESS in Corp Credit mkt is growing!

      ‘Borrowing Binge Reaches Riskiest Companies’ (wsj)

      ‘[..]Among those factors are the nearly 40-year decline in U.S. Treasury yields, which has fueled demand for higher-yielding assets. Some are also hopeful that Congress and the Federal Reserve could be nearly as aggressive in fighting future recessions as they were the most recent one.

      Still, some analysts aren’t convinced that lower-rated debt is less risky than in the past, arguing that struggling companies will eventually default on their debt when interest rates rise or their own problems worsen.[..]

  19. capthank says:

    My question is this. How far can the FED raise interest rates before that would send the government into default on its dept?

    • sunny129 says:

      Mkts will start getting jittery once 10y raises to 1.7%!
      At 2.5 full fear will materialize.
      Remember that the critical rate when Fed marched backwards all the way back to 0.25%

      • Old school says:

        Since the government is the big dog I could see them soft defaulting on treasuries in a few different ways. I think there is a history. Maybe just limiting interest to 1.5% say and making pension funds hold a certain amount.

        • sunny129 says:

          Their crtedibility in controlling once the ‘real or expectation inflation shoots up’ beyond 3 or 4% historically poor. Just look at the 70s

          Fed has been always REACTIVE and not PRO-ACTIVE in it’s history since 1913!

  20. Lisa_Hooker says:

    Most folks just don’t understand the differences between secular and theosophical (FRB) economics.

  21. CCDragonfly says:

    I believe the Fed is happy to let the longer end of the curve sell off a bit. A steeper curve is generally better for the banks.

    My consumer staple stocks are off quite a bit from the highs. As they have decent dividends, are thought to be safe spaces in an inflationary environment and the market is tagging new highs it is interesting. I still think HY will roll over first in any inflationary scenario. If the 10yr moves above 2% and inflation indicators start to perk up HY and equities sell off.

    Would be ironic if the $1.9T stimulus bill passes and then long duration risk assets tank because of inflation fears.

  22. breamrod says:

    Europe’s rates are negative and money velocity is still in the tank. I think Powell knows negative rates don’t work and is fine with the ten year rising as long as it does so gradually and doesn’t spike. I think he is fine with a 1.50% ten year but not a 3%

    • RightNYer says:

      By the time it reaches 3%, he’ll have lost control. Countering that would require massive purchase of long-term bonds, further devaluing the dollar and increasing inflation expectations even more. It’ll create a positive feedback loop that won’t be easy for him to stop.

      • sunny129 says:

        Fed cannot even tolerate 2.5% let alone 3%!
        That’s the leven from which Fed marched fast BACKWARDS to 0.25% in late 2018!

        • RightNYer says:

          It doesn’t matter what the Fed can tolerate. The Fed ultimately is smaller than markets. When they lose control, they won’t be able to do anything about it.

      • ru82 says:

        Can they lose control. How has Japan been able to keep rates at 0% to .5% for 21 years.

        Not disagreeing….just wondering?

        • RightNYer says:

          Because Japan is still a creditor nation (meaning it has a trade surplus and also lends more money to foreign nations than it borrows from foreign nations). I don’t totally understand the mechanics, but the gist makes sense to me

        • sunny129 says:

          BOJ owns nearly 90% of it’s own bonds unlike Fed.
          Fed has to become virtually the only guranteed buyers of US bonds, which in fact going that way!

          Cryptos are rebellious reaction to these loose fiat policies! Who would thought retail investors coming together against hedge funds, pushing GME to over $300? It is still above $10 it’s book value (in 50s!)

        • ru82 says:

          @RightNYer I have read the Fed could do the same thing and buy 90% of the U.S. Government bonds too. They have just chosen not to but they could in the future.

        • RightNYer says:

          Sure, they could, but then it will tank the dollar even more and make it impossible for us to import anything at prices that seem reasonable.

  23. makruger says:

    I suppose one could think of housing as a long term bond. As those rates increase, the price is likely to fall, at first slowly and with much resistance, then perhaps more suddenly as rates increase further.

    Why is it that the relationship between bond prices and interest rates are not linear? If it were, then I would expect the yield increase would offset the drop in prices, but apparently thats not the case. Last year some bond funds were up over 20%, but clearly the coupon rates were only small fraction of that.

    There is of course foreign currency denominated bonds. With the dollar falling, Chinese RMB bond funds such a CBON might prove attractive. It’s up nearly 5% in the last three months. Most of that is probably due to the falling dollar though.

  24. Keepcalmeverythingisfine says:

    This looks like the Fed is intentionally steepening the yield curve, rather than the bond market smelling inflation. The fed is also keeping mortgage rates lower by being active in MBS. It is an effort to get the economy back on its feet. This cycle will play out until the next calamity comes along.

  25. Swamp Creature says:

    Network Capitol Funding, based in Irving California, is advertising a 1.75% rate on a 15 year mortgage on our local WMAL radio station. They claim there are no lender fees, or other miscl costs, etc. How can they make any money at that rate? Is this for real? This must be some kind of scam.

    • C says:

      Swamp Creature

      In my above reply I said the answer is borrow in REPO and lend at hire rate until securitized. Additionally, mortgages are amortized so front loaded with interest which pays a much higher Vig to the man.


  26. John says:

    Fiscal stimulus seems to be the effect on rates with the bond rat smell. The debt will cause slower growth than before because of covid, beside all the forbearance in place. Stuck comes to mind. All other central banks doing the same thing seems to keep this all going. Maybe some hissy fits, lumber too high for builders will slow it all down. Then what? More stimulus? Higher taxes? If that happens we are double stuck. What a mess! Stuck with the Fed. I find there is absolutely no more Fed independence that is a crock.

  27. Petunia says:

    Could it be there’s no demand for mortgages any longer and the realtors can sell to each other all day long without anybody caring. Starting to get the distinct impression this is the case.

    Everybody in forbearance is technically in default and underwater. They are stuck, can’t sell and can’t move. Looks like Florida 2002-2008 to me. The banks may have to sell the defaulted homes to the govt and skip foreclosure. With over 25M unemployed where would the buyers come from.

    • Heinz says:

      Everyone and their dog has gone absolutely batsh*t crazy about housing this past decade.

      It is now just a bubblelicious game of leverage and speculation, and a convenient means of falsely propping up a weak economy.

      Houses until recently were always considered an ordinary consumer good– shelter that historically just kept up with long term inflation with ups and downs according to financial times.

    • kitten lopez says:

      VERRRY INTERESTING … because that small REIT here on our street i’d talked about with the problems of earlier all night asexual tech-startup parties with wanna be tech girls in panties sleeping together in tents in the back yard, the ones i told you all about hosing down that night they wouldn’t STOP… it’s still by the same small-time REIT that’s been tearing up the apartments and trees for feng shui, evicting folks and trying to sell the apt. building here for a couple of years (it keeps going on and off the market)..

      (1385 hampshire / sf, ca)

      but NOW they recently bought out one last holdout tenant who’d started the Firefly restaurant awhile back / and now only one tech guy lives there (pays a lot), and instead of trying to sell the building in whole in this no-eviction market, they’re trying to now sell the two remaining 1-bedroom apartments as Tenants-in-Common, for $60k down, $2900 with an add’l $60k for parking space in the garage (according to flyer).

      TIC means you’re on the hook for the entire mortgage with everyone else and i wondered if the REIT lady was getting desperate to sell because she was trying to pitch the earlier annoying faux-start-up guy a share in some other texas apartment building along with the original $50k he got to leave.

      i’m just guessing because it’s a “type” (greed) that’s predictable, but knowing how they cheaply and quickly they “fixed” things up (the quality level is sooo low the workmen still living in the mission wince at how little realtors are willing to pay for ANYTHING to be done right and proper), i’d never wanna pay HOA fees to these same people who never fix anything once they get a paying sucker, like that tech guy went almost a year without heat.

      but he’s a hustler and fights and i think used it in his negotiation for lower rent.

      i don’t know; but when James came in and told me their latest deal, i said, “Eeeew.”


      • Petunia says:

        The landlady is trying to coop the building because she can’t get the price she wants for the entire building. The real price is less obvious when the units are sold individually. This was a common practice in NYC in the 1970’s when prices for buildings were low.

  28. Heinz says:

    Our rogue CB the Fed is so arbitrary and capricious that you can’t imagine what ludicrous scheme they will think up next to keep all the plates spinning.

    Recently Fed Chair Powell mentioned we will need an average payrolls figure of over 500,00 every month through to next December before any interest rate hikes can even be considered.

    That’s an example of how they will unashamedly keep moving the goal posts as they please until it is finally ‘game over’.

    • Depth Charge says:

      “Recently Fed Chair Powell mentioned we will need an average payrolls figure of over 500,00 every month through to next December before any interest rate hikes can even be considered.”

      I know. This was laughable. Have we ever even had gains of 500,000 per month? This guy is diabolical.

  29. gorbachev says:

    For the most part, the 25 million unemployed in this covid
    crisis represents the bottom earners . They would not have had the ability to purchase a home and likely never will. Homes are being purchased
    because boomers are releasing funds and passing them on down.Also
    the value of cash is deteriorating, further fueling
    this frenzy.

  30. Crush the Peasants! says:

    So UST prices/yields osentibly are determined in an auction process, with the main participants being the criminal banks that own the Fed. Keep in mind that the money supply had been rising with related increases in the price of higher education, equities, healthcare, real estate, automobiles, etc. while interest rates were falling. So the increase in money supply and inflating prices caused the “bond vigilantes” no concern, go figure. But now, there is apparent concern.

    It is true that the money supply growth has increased substantially due to the pandemic stimuli and reactive policy adjustments. But past increases in the money supply, albeit at a less steep slope of increase, with rising prices of the above, caused no concern.

    So what is at work here? A few ideas:

    1. As was posited above, it is the appearance of inflation as calculated by the bogus offical CPI metric that causes a reaction amongst the bond vigilantes.
    2. And is not the increase in money supply per se, nor the real increase in the prices of real important things like healthcare and homes, that is of concern to the criminal banks.
    3. It is the assumed knee-jerk reaction by the Fed to the assumed increase in the official bogus CPI metric that the criminal banks, who always get inside info from the Fed, are front-running.
    4. And so the bond vigilantes are not tuned into how rising prices decrease the quality of life for the average American, but how they can get ahead of the likely move of the Fed and make money.

    • Petunia says:

      There is talk out there about our great new leader having promised SS recipients an increase in benefits to put them above the poverty line. Don’t think it will be done, but should be done, if they are serious about inflating the money supply. Otherwise it’s more people living on the streets and more broken promises.

      • Trailer Trash says:

        My benefits are about $4 a month above the Food Stamp line. I guess that means I’m not really poor after all.

        • Petunia says:

          I don’t know when you last applied, but you should look into applying again because the rules have been changed for covid. They are paying out more as well.

  31. Lawefa says:

    That rat we smell has been dead and festering for months….we are just now smelling the dead because the taste and smell sensors are just now coming back from a severe COVID case.

  32. Is the Fed willing to let yields rise above the inflation level? Certainly a good way to sell bonds at auction. Analysts seem to equate that with armageddon, however pent up demand would tend to dampen any spikes. You see this in equities, one share tossed into the pot nets ten buyers. Allowing yields to climb would alternately spur economic demand, and keep that demand in check. Also suspect some GDP numbers not seen in years, and that implies higher interest rates. Inflation is the same across all maturities, and therefore bond buyers move farther out the curve.

  33. Rcohn says:

    Yesterday I had a conversation with a good friend of mine. He is a graduate of Harvard and Harvard Business School, was a drug analyst for 20 years and a stock derivative trader for over 25 years, so no one would refer to him as financially naive.
    He is concerned about holding any monies in any of the large banks and is even concerned about his substantial cash balances at Treasury Direct . I tried to hold his hand and told him to worry about other things. But later I thought about this. Why is an investor who understands the financial markets better than 99% of the people on Wall St. and who has made very substantial monies worried about the very basis of our banking system . So many events have happened in the last few years that I thought was impossible that maybe his fears might just not be so ridiculous.
    How many people predicted a squeeze of hundred times in GME a year ago?
    How many people predicted that spot natural gas in Texas would rise 109 times in just a few days?

    • Memento mori says:

      Relax, take your comment to ZH, might get some likes.
      The Fed bought junk bonds, if you think they will let big banks fail, I got a bridge to sell you.

  34. Bobber says:

    The one thing I find most interesting is that both major political parties like money printing and asset price inflation.

    The key issue of our time isn’t even a point of political discussion.

    • MonkeyBusiness says:

      I read an article recently about how other countries are corrupt while our system is corruption.

      “Americans have this thing called a fundraiser where you put a pile of bribes on a table, wave a wand of asparagus over it, and it just disappears. Access is still bought, but somehow because people ate food, it’s not corruption anymore. The press will literally report on the food.”

      “In any other country you wouldn’t report on the chicken, you’d report on the corruption. However, American politics follows the escort rule. If you have dinner first, then you’re not paying for ‘it’. While sex work is honest work, however, these political meals are just naked corruption.”

      • Trailer Trash says:

        The true symbol of America isn’t a bald eagle – it’s Al Capone.

        The Do-gooders that brought us Prohibition never anticipated their campaign would result in truckloads of cash for purchasing politicians, judges, cops, prosecutors, etc., etc.

  35. Yort says:

    Seems a little premature to think the reflation trade is going to continue at the current predicted pace simply because a $1.9T stimulus is going to be passed in March. Of that $1.9T, which is really charity as it will not actually stimulate new economic growth, about $200-$300 Billion will maybe make it into an economy that is currently running $50 billion per month short of full potential….thus about 4-6 months of life support. Most of the stimulus will be applied to paying down debt, savings for an uncertain future, non-discretionary items such as utilities, rent, mortgage payments, etc. Sure the Fed can finally get their dream of “everything inflation” in the future and possible Stagflation States of America status “IF” the Fed/Treasury/Govt keep sending us all $2,000 checks for months to years to come, yet it seems to me the daily Wall Street MSM advertised “Inflation Trade” is way, way ahead of itself. And “IF” the 10 year approaches the 1.5% level, the Fed will unleash some magic in the form of yield control, etc…so there will be more capital gain in holding treasuries as the price spike 10%, which is what could happen if the yield falls from 1.5% to 0.5% once again…

    And the “shovel ready infrastructure” trillions is never quick or “shovel ready” from past experiences. Yes, yes CAT to the moon as we are all going to own bulldozers and excavators and build bridges to nowhere in a few short months…sure, HA

    And the Trillion dollar “Forgive all student loans to buy some votes” movement is also simply charity, not productive economy growing stimulus. With 90% of borrowers already not paying student loans, does it matter if it is all forgiven now and forever? And how is stopping $100/month student loan payments for the next 20-30 years going to add to GDP by any significant amount quickly? $1200 per year of “free money” is about one new I-phone per year.

    And the green movement trillions, that is going to take time and most likely be the last thing on the list to do, and will be very difficult to pass as it approaches mid-term elections in two years and the political class worries more about getting re-elected versus pushing an “FDR green New-New deal” that nobody can really figure out how it helps long term, but it does sound pleasant for the peasants. Paying people $50,000 each to build and live in 1,500 square foot versus 3,000 square foot would do more for “green future” than spending trillions to add a million EVs to a brokend down road infrastucture….but I degress, as I’m sure that will pass as soon as the wealthy “green elites” outlaw ownership of their own private jets they use to fly to Davos to shape a bright green ownership free future…

    Inflation is coming, yes. Yet I think the reflation trade timing is not going to happen at the acceleration that Wall Street is currently predicting. And to be honest the virus will determine the outcome soon enough as if we do not have it under control by July to November 2021, they will need to pass another $5 trillion to keep the economy from falling apart next Winter, let along growing the economy beyond 2019 levels…

  36. WSKJ says:

    Feb. 14, 2021

    Feb 6, 2021 at 7:28 am
    Great article. The postscript is the “Ethics Waiver” for Treasury Secretary Janet Yellen whose role in this story cannot be overlooked. Yes, the same Yellen who received close to $1 million in “speaking fees” from Citadel….

    I discovered this Comment as I browsed some recent Wolf Streets. I had naively assumed that Janet Yellen, being a banker, had sufficient wealth; and holding highly visible offices, would refrain from accepting fees from those affected by her public policy decisions.

    Having read “asdf”’s Comment, I googled the topic of Janet Yellen’s speaker’s fees, to discover that she has received many generous fees from a number of financial companies.

    Wolf, it is good that you reliably report the Fed’s numbers, and report their statements purporting to explain why they are doing what they are doing.

    But we must keep reminding ourselves that that is only half the story. When Yellen talked about keeping interest rates LOW until employment recovers it sounded weird, Now I have a much better filter of comprehension to put on that kind of talk.

    Thanks, “asdf” (have to quote your nom de plume to escape word processing)

    • Lawefa says:

      Janet Yellen has been paid at least $7m for speaking engagements at government-regulated banks, consultancies and hedge funds over the past two years. Bought and sold.

    • sunny129 says:

      In total, she has collected over 7 millions for her speeches.

      Barnake is collecting (?) for his speeches!

  37. Rcohn says:

    US 2020 gdp=20.8
    Debt =27t
    Debt/ gdp=1.30

    US 2021 gdp=22.2t( based upon a 6.7%increase)
    2021 debt ( estimated )=31t
    Estimated Debt/gdp=140%

    EU debt/ gdp ratios( 2020)

    Basically the US would rank a close 4th worse in 2020 if it was a member of the EU and is expected to surpass Portugal in 2021 for third worse and will be approaching Italy in not too distant future.

    Just as a comparison, the US came out of the 2nd WW with a debt/ gdp ratio of 106%

    Now maybe Ms Yellen comments on “going big “is comforting to some, but the projected numbers petrify me. And maybe the recent bond market move is just an indication that it is coming out of its somnolent acceptance of the stupidest financial policies in history

    • MonkeyBusiness says:

      As Branko Milanovic says,

      In many countries, where the institution of “paid speaking” does not exist people would be given fat envelopes. That would go under the heading of corruption. In the US, they are paid for their “speeches”.

      • sunny129 says:

        Until recently that’s how Mafia Dons were paid, for their ‘protection’ service!

        • MonkeyBusiness says:

          I am just quoting from Indi Samarajiva’s article:

          “Just look around. Where’s your fucking cheque? Why does the government intervene when the stock market goes down, but not you?

          Americans have become inured to the fact that billions of dollars are spent on bribes while trillions of dollars flow out of their treasury, and they think that these facts are somehow unrelated. But these facts are not unrelated. This is cause and effect.

          You think corruption only happens in the Third World? You arrogant, ignorant fools. The joke’s on you. We get robbed, but we know we’re getting robbed. Y’all don’t even know. You really think these people just eat chicken and clap and don’t get their money back a hundred times over? It’s all corruption you fools. Always has been.”

      • YuShan says:

        This always amazes me about America. That this type of corruption happens all in the open for everybody to see and is simply an accepted part of how the system works.

        • sunny129 says:

          NO surprise here, on that issue for nearly TWO decades!

          Read the book by Greg Palast 2002
          titled – America the BEST Democracy Money can buy’

          Read the 2014 SCOTUS decision (Citizen vs United):
          A Corporation is a CITIZEN and the Money is Free Speech!

          It is an OPEN SECRET!

    • Grammar Nazi says:

      dont forget japan! 200%+ debt to gdp

      • Wolf Richter says:

        Grammar Nazi,

        Just an FYI: I noticed that all your comments go into moderation. So I took a look. It’s because of the alias. “Nazi” is one of the trigger words. I’m fine with the alias, but I just thought you should know why.

        • Rcohn says:

          Japan has the highest debt,/ ratio of any developed country, yet its interest rates are very low and it’s currency is stable
          Since Wolf has extensive knowledge and experience about Japan, I would appreciate his thoughts on why this is the case.

  38. Robert says:

    I think in the end the market will acknowledge that all these bond yields are artificial and therefore meaningless. Junk at 4 % or 10% or 1% is irrelevant as well as the treasury yields rising or falling, when it’s all directly manipulated by the Fed by treasury purchases or jawboning. There will be a convulsive flight to quality.

    I think the Fed is losing control and that we’ll have a blow out in yields this year. The US dollar and government appear to be a joke to me. Just imagine how they appear to critical foreigners investors. (What you couldn’t keep a bunch of loony rioters out of your capital? And you need the civil guard posted just so you can do business?).

    USA is beginning to look like a third world country. Yields will reflect that.

    Only fly in the ointment is if covid mutates and starts dropping people in the streets, or a possible conflict with China.

    • Petunia says:

      The fed went from being the lender of last resort to being the market maker of last resort. Now they are the market. It’s all fake to me.

      • gorbachev says:

        I wonder what real rates would be without support

        • Memento mori says:

          When the repo crisis happened in September 2019 rates went to 10% before the Fed spend a trillion in notQE and other arrangements. That should give you a clue where rates should be in a free market.
          And the world might be better if we let free market works, the youth might have an incentive to be thrifty , houses will be cheaper, and speculation restrained.
          But no worries, government is here to help you.

        • sunny129 says:

          Memento Mori

          ‘the world might be better if we let free market works’

          They should have let the Free mkts doling out needed bitter Medicine in 2009. Instead, insane credit creation/infusion have masked all the underlying structural global financial system and got kicked down the road!

          IMHO the crypto is a counter revolution has born as a reaction to this insane policies. There is more interest in crypto by banks, CC companies and corp businesses headed by Musk, for the past week.

          ‘The point is that bitcoin, and cryptocurrencies in general, are still assets in their infancy. But as technology anyone with an ounce of intellectual honesty can tell you where this is all headed.

          And this week’s mass of announcements is the dam breaking down of adoption. It’s the clearest signal yet that the overreach and arrogance of the political class has reached its limit of power.

          We don’t buy it anymore. And the whole system is now accelerating towards a catastrophic crisis of confidence.[..]

    • Hernando says:

      At least they are honest in their deception.

      • sunny129 says:

        Cryptos are unwilling to participate in their deception.

        Whether one believes in it or not, it is real phenonmena, as a counter revolution to insane CBers fiat currenyc debasement/devaluation.

        Ironically Businesses are slowly warming up to the idea of owning a share of crypto currencies which can a ‘boost’ ( at least temporary) to their stock shares! Wait n See!

  39. Hernando says:

    So, because of this interest rate manipulation and injection of liquidity, I’m buying a house to park my cash.

    I have well enough to put down way above 20% on the house I’m buying- but the recommended lender wants to tack on a piggyback HELOC for some reason. I have other lenders and a friend who owns a bank looking at the quote.

    Why in the world would this mortgage lender try to tack on a piggyback if I’m putting down near 25% and have no debt, excellent credit… and cash in the bank??

    Is he a grifter? I mean he is a senior mortgage con…sultant

    • Petunia says:

      The mortgage lender wants you indebted as long as possible. The Heloc is a way to give you easy access to your equity at a higher rate. The mortgage broker may also earn a commission for opening another credit line. Everything they do is for a reason.

  40. Mary says:

    hi there when will the gold price rise decidedly after the 1.9$ stimulus bill is passed? will it rise the day the bill is passed? or the day the president signs it or even months later? would someone please kindly explain the approximate date for me? cause i want to invest in gold . thx dudes
    Sincerely Mary

    • Depth Charge says:

      Gold and silver should be way higher than they are right now. They are being artificially suppressed through the paper contracts. The manipulation smells worse than a dumpster behind a fish shop in south Florida.

  41. Swamp Creature says:

    The United States today resembles the disfunctional Austrian Hungarian Empire in the years 1900 – 1914. Why would you even go back 100 years and look at this?

    Mark Twain once said “History does not repeat but it rhymes”

    While predicting the future is difficult the historical record is cast in stone. The analog parallels are frightening.

  42. K says:

    I am surprised that anyone other than those compelled to get a fictitious (assured) interest rate, like some pension funds, would actually buy bonds at these ludicrously low rates. Judging from the near doubling in the price of my recent purchases, after the “Fed” printed more dollars last year in one month than in decades before, the rate of annual inflation must be more like 19%, or a lot more. They should gift a stuffed animal or something to each such sucker for their unknowing contributions to the Wall Streeters’ funds.

  43. Swamp Creature says:

    Looks like the music ain’t playin so load anymore. The10 year note hit 1.35% today, heading straight up to 2%. When that happens all the dancing will be over, along with the housing bubble. Welcome to 2007/2008 all over again. Enjoy.

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