There’s Lots of “Liquidity” in the Treasury Market, but at Higher Yields, in this Raging Inflation

Higher Yields Solve “Liquidity” Problems.

By Wolf Richter for WOLF STREET:

There is now a lot of handwringing on Wall Street and in the financial media about “liquidity” in the Treasury market. “Liquidity” means a gazillion things, but in this case, it probably means that there doesn’t seem to be a lot of appetite for buying, for example, 10-year Treasury securities at the current yield, and some of the auctions have seen less than stellar demand, as a lot of the big Treasury buyers have stepped away from the market, including large pension funds and life insurers, particularly in Japan. US banks have stopped adding to their $1 trillion in Treasury holdings. And the Fed is now reducing its $5.6 trillion in Treasury holdings by about $60 billion a month.

So who’d want to buy a Treasury security with a longer maturity at 3% or 4% yield, when CPI inflation is over 8%, with lots of signs that inflation will prove to be dogged, will pop up again just after folks thought it had been vanquished, and will pulls head-fakes on everyone? That’s what inflation did last time it took off, which was in the 1970s and early 1980s. So now, Wall Street and the financial media are expecting a lot of demand for a 10-year Treasury that yields just 3.9%?

There are buyers waiting for the 10-year yield to hit 4.5% before they buy. And once they’re satisfied, more buyers will emerge at 5%. And then once they’re satisfied, there will be more buyers at 5.5%, and once they’re satisfied, more buyers will emerge at 6%….

There is a huge amount of “liquidity” out there, waiting to be deployed in longer-dated Treasuries, and that includes me, but not at today’s puny yields, given where inflation is today and where it may be in a few years, with the real 10-year yield today being -4.5%.

Sure, if you scare investors out of their wits, they will buy 10-year Treasuries even if the yield is just 1%, because they know they’re going to get face value if they hold to maturity, which sounds like a tempting proposition when all heck is breaking loose.

But when all heck is not breaking loose, the equation of yield and inflation matters. And that’s where we are today.

Sure, higher yield means sellers get a lower price.

This is the other side of the coin: Higher yields mean lower prices for the current holders if they want to sell.

If I paid around $1,000 for a ten-year Treasury note in October 2020 at auction with a 1% coupon, I know today that I will get 1% interest per year for another eight years, and then I will get paid face value ($1,000). But inflation is now over 8%, and that 1% coupon will not compensate me for the ravages of inflation. So I might want to dump it. And if I do, I will pocket a big capital loss because the price would have to be low enough to generate the market yield to maturity of 3.9%. Plugging this into an online yield-to-maturity calculator tells me that I could sell my $1,000 bond for $734.

Or instead of taking a 26% capital loss and wash my hands off it, I can hold it to maturity and get $1,000 in eight years, plus eight years of 1% interest payments.

Higher yields solve all “liquidity” problems.

So, I can go on CNBC and complain that there is “no liquidity” in the Treasury market because I cannot sell my 10-year Treasury for a price that reflects a 1% yield or a 3% yield, when inflation is 8%. So there must be a liquidity problem. That sounds good. Maybe I can even persuade the Fed of my point of view to get them to, well, pivot.

Yet, there is plenty of liquidity, but with 8% inflation, the liquidity isn’t at a 1% yield, and not at 3%, and it may not be at 4% either.

The higher the yield, the more buyers show up – the more liquidity appears. And when the yield rises enough, at some point there will be more potential buyers than willing sellers, and amid this flood of liquidity, yields tick down. Higher yields solve all liquidity problems.

Instead of going on CNBC and complaining about not enough liquidity in the Treasury market, folks should go on CNBC and complain about yields being still too low – and prices too high – given the raging inflation.

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  185 comments for “There’s Lots of “Liquidity” in the Treasury Market, but at Higher Yields, in this Raging Inflation

  1. SocalJimObjects says:

    As the saying goes in the bond market, there are no bad bonds, only bad rates.

    • Harrold says:

      Rates are set by auction. So low rates tells us investors are buying up anything longer than 3-year treasuries. It looks totally bonkers for 6-month yeilds to be 4.09 and 30-year only 3.89, but that’s how they see the future — inflation being defeated, and the fed back to being very accomodative.

      Personally, I’m sticking with 3-month treasuries until the fed is actually done raising rates. I couldn’t care less about the so-called gurus and their daily predictions.

      • Crush the Peasants! says:

        Laddering might be a good solution – 25% each in 3, 6 9 and 12 month Treasuries. When the 3 month matures, the 6 month is essentially a 3 month, etc.

        • WA says:

          The banks can still buy bonds. They pay 0% on deposits and get 4% from treasuries.

          They are not doing this means, they expect yields to keep rising significantly.

          That’s 4% profit on liability!

        • Harrold says:

          I don’t want the ladder because I expect more rate hikes. I’d rather just keep renewing at 3 months, taking the progressively higher rates until the fed is done. Then I’ll either ladder or just hold a long maturity.

      • Wolf Richter says:


        “Rates are set by auction.”

        Just to be clear: Only the government sells at auction. All other trades take place in the secondary market.

        What I said was that if I want to sell a 10-year maturity at 3%, I will find that there is no “liquidity” at that price. So then I go on CNBC and complain about the lack of liquidity in the Treasury market. But if I’m willing to sell at a much lower price (much higher yield), there would be plenty of liquidity.

        • Last week the June 5Y TIP bond was down 10% in the secondary market. My broker had a client who bought large and was upset. So I went to my online broker to see if I could buy the same bond, which by this time is trading at 93 or so, and I could, but the fees would take it back up to par. I don’t know if this is typical or not. Held to maturity a note will always redeem at full value. The 5Y is again next week and I am curious to see how that trades, it is not a reopening. A lot depends on what happens to the Thurs CPI report. Inflation expectations tend to cause exaggerated price changes, so if CPI drops I will definitely be looking at that. When you have plenty of liquidity and no flow, they call it a liquidity trap. No one is going to buy the 20Y bond when the 2Y yields more. The premium on mortgage rates is obscene.

        • Wolf Richter says:

          Yes, I can imagine that TIPS scenario. That’s why, as little bitty retail investor, I stopped buying bonds in the secondary. In the past, I feel like I’ve always gotten shafted somehow. I just want to sleep in peace when it comes to bonds. So I buy at auction and hold to maturity and don’t worry about it. If I want to get on a roller-coaster or deal with surprises or whatever, I buy stocks or commodities.

          That said, if you buy a 20-year or 30-year, a 30-50 basis point increase in yield can make a big difference over the span of the maturity, and I will keep my eyes on the secondary if we get into a situation like that.

      • joedidee says:

        I can get 3% on 6 month CD – not sure I want to tie up money for that long

    • Augustus Frost says:

      There are bad bonds because some of them will go to zero or default, though this doesn’t apply to UST in theory.

    • Lawrence Pusateri says:

      I thought the same thing when all heck was breaking out in England –they were screaming there are no buyers!

      I was a buyer at 10%!!!

      What they mean is – there are no buyers at the price I want to sell!

      • Wisdom Seeker says:

        Guide to Financial Whining:

        “There are no workers” (at the wages I’m offering)

        “There are no home buyers” (at today’s prices & mortgage rates)

        “There’s no Treasury liquidity” (at negative real yields)

        “There’s little at the top of the stock market order book” (because bidders are demanding wider spreads due to greater uncertainty and high volatility).

        Bottom Line: If no one is willing to meet your price, it’s not a liquidity issue, it’s not a “broken market” issue. The issue is that your price is wrong.

        • historicus says:

          well said Wisdom
          Employers cant find workers by offering wages out of sync with inflation
          Federal govt trying to sell treasuries out of sync with inflation
          Why are things so out of sync….mr central banker?

        • NBay says:

          A good summation WS, although I have no idea what “the top of the order book” is, and don’t give a damn because I don’t play, and wouldn’t if I could.

          I personally hope the “slave rebellion” concerning wages that has been mentioned here a few times is true, having been a W-2 “slave” all my life. I chose to make my living with my brains AND my body because it FELT GOOD, and left me time to have FUN during my youth and on up to the end of my W-2 career, And I retired at 55, something all you strive for, but then I worked harder than ever doing my own thing.
          Yeah, I supposedly cheated a lot of people by not living up to my “full potential” and took a lot of crap for it from relatives, especially my mother.

          This “slave rebellion” will lead to what it leads to and spare me any dreadful upper class Econ theories (ok, upper middle class for those who “might ” be becoming ashamed of their “lifestyles”……hopefully…..VERY hopefully. And don’t throw that Christian “envy” shit at me, I think the lifestyles of most here are sick……needless consumption is a mental illness just like gambling and drugs.

          If the society is dependent on it, then it’s a bad society and should change.

        • NBay says:

          That is fun as in FUN at work, all kinds, many kinds, both in doing it and “extracurricular” adventures AT WORK. Although I did have my motocross, flat track, skydiving, ab diving, VB, and of course partying and other adventures with friends outside of work. Kids talk about wanting “experiences”….hell my whole life was that. Not a single regret.

          Not many get the difference here between “a good work ethic” and ambition…..sadly. 91B20 instantly recognized it, he hasn’t been here for a while, hope things are ok. Viet Vets all like each other, but most seldom talk about that hell hole clusterfuck.

    • gametv says:

      Liquidity is the latest reason for why the Fed “must pivot” NOW!!!! Oh, help us, we are losing a ton of money here. Screw the working people, the rich need to maintain their lifestyles.

      The Fed wont pivot at the next meeting and more hell will break lose on the markets. The Fed has decided that it is better to unleash hell today and hopefully break the back of inflation, rather than have it get entrenched.

      None of this will address the bigger picture issue, which is that our whole economy is built upon massive government deficits, massive trade deficits and massive central bank liquidity that has barely been unwound. And a massive debt/asset bubble in housing.

    • James says:

      There is like $2 trillion in reverse repo at the Fed owned by the primary dealers. Basically, that is cash sitting on deposit at the Fed earning interest. This is really just “excess reserves earning interest.”

      Why don’t the banks deploy this capital in the treasury market?

      I assume it is because reverse repo is a better environment, right now, being it is an overnight variable rate, as opposed to the long term fixed rates on treasuries. Is this capital stuck because the banks are afraid of getting burned on further rate increases?

      Why doesn’t the Fed just eliminate the reverse repo market….even if just temporarily….to drive this capital back into UST’s, credit, and equities?

  2. Kunal says:

    Why will anyone buy any treasuries at negative yield. No one should when inflation is showing little signs of giving in. Even 6% implies negative yield. But they are buying. This only means that everyone knows that money printers will be turned back on soon and people will get paper dollars directly from government in the future.

    • Wolf Richter says:


      On the contrary. What it means is that those buyers think the Fed will succeed in cracking down on inflation with enough rate hikes and QT so that two years from now, inflation = 2%, and then the 6% yield for another 8 years will be a good deal with a real yield of +4% for eight years. THAT’s their calculus. It assumes that the Fed’s crackdown on inflation is hard enough and can succeed in two or three years.

      If the Fed pivots to QE, we’ll have inflation out the wazoo, and no one outside the Fed will buy any Treasuries. And that will create even more inflation. Everyone including the Fed knows that. Well everyone, except Kunal.

      • Phoenix_Ikki says:

        Well it is Kunal after all…what else do you expect? I am sure in his mind RE is still one of the sure way to beat inflation..

        • WA says:

          Kunal is probably drawing from UK where BoE is continuously increasing its QE, to prevent yields from rising.

          The biggest problem that BoE has is its rewarding and encouraging bad behavior through bailouts, that would cause more funds to do the same hoping that they can make huge profits if odds work our and get bailed out if they don’t. This lack of accountability can keep feeding QE spiral in UK.

          We can keep shorting the Pound and the Euro.

        • Wolf Richter says:

          The BOE’s purchases are minuscule, some days 0, some days just over 1 billion, of the daily max of 5 billion and now 10 billion. It’s just calming the waters with words so that pension funds can liquidate their LDIs in an orderly manner. Clearly, the BOE is OK with the rising yields because it is rejecting to buy most of the offered bonds.

          When I published my last article on the BOE’s minuscule or zero purchases, not many people read it because people don’t want to know. It’s a lot more fun to just read and spread clickbait headlines about “expanded QE” or whatever.

      • Burn ward says:


        • NBay says:

          We got Trump, they got Brexit. Trump’s gone. Brexit isn’t.

          “…….the rich will prey on the prejudices of the people until all the wealth is in the hands of a few and the democracy is destroyed……..” -Abe Lincoln (took some liberties with the quote for clarity)

          I’m still all for the EU effort….but much tougher than us dealing with “states rights” crap, and less land and resources. Corps, and other wealth/power can crush States like bugs, central gov’t is much tougher, not that they aren’t successful at weakening it a lot since WW2 and FDR.

      • andy says:


        if you were to buy a 10-year Treasury, would you buy it thru Treasury Direct? Or secondary market thru a broker somehow?
        Would you ever consider buying a 20 or 30 year Treasury? Thank you

        • Augustus Frost says:

          I’ll give you my answer to your question.

          The only “natural” buyers of 20YR or 30YR paper are institutions like pensions and insurance companies with offsetting liabilities.

          Every other buyer is speculating on interest rates unless they have no idea what they are doing. I don’t see any individual buying this paper to hold it to maturity.

        • BenW says:

          Wolf isn’t going to give investment advice.

          If you buy in through TD, you’ll buy in the non-competitive category, which you need to research just like you need to do if you go through the secondary market.

          If you’re new, you may just want to stick with buying ETFs like TLT (20Y) & IEF (7-10Y).

        • Wolf Richter says:


          That’s an interesting question. There are not many 20-year and 30-auctions. So if there’s some market upheaval, and yields spike for a few days or weeks, but there is only one 20-year auction per month, you might miss an opportunity if you wait for the auction. I don’t think we’re anywhere neat that tho.

          So I cannot give you an answer — but it’s a good question to struggle with.

          I don’t even know if long-term yields will rise enough to where I want to buy a 20-year or 30-year. I’m not a buyer at anywhere near current yields.

        • Eastern Bunny says:

          Treasury direct is great.
          But if you buy with TD , consider holding the bills/bonds to maturity as selling before is quite a hassle, possible but very complicated.
          If you hold your bonds with a broker, you can trade them easy, just a phone call away (with TD will be many phone calls, and paper work before you can sell/transfer them).
          Now I dont know in the event of a bankruptcy of your brokerage house what happens to your gov bonds in which case going with TD is much safer imho.

        • Wisdom Seeker says:

          @BenW: Bond ETFs and Mutual Funds are not at all the same as owning bonds to maturity (in ladder or otherwise). Bond funds have a unique “run on the fund” wealth destruction risk in a credit crisis, which individual bonds don’t have.

          @Augustus: Buying bonds and holding to maturity isn’t that farfetched for individual investors (as opposed to rate-speculating traders). Individuals all have offsetting longer-term liabilities such as mortgage payments, retirement living expenses, car-replacement costs, college tuitions (children or grandchildren), etc. The only reason institutions have longer-term liabilities is to meet the liabilities of their pensioners, after all.

          Wall Street loves to sell people funds, but a bond ladder held to maturity is cheaper and less risky. And you can choose who gets the benefit of your loan, instead of some big bank or whatever.

          All that being said, longer-term bonds haven’t been reasonably priced for about 10 years. But they have their moments.

        • Augustus Frost says:

          Wisdom Seeker,

          Of the examples you provided, only a mortgage is an actual offsetting hedge. Buying long-term fixed rate paper doesn’t hedge any of your other examples because the cost isn’t fixed.

          I can’t say no individual buys and holds to maturity, but it can’t be hardly anyone.

          Not at anything close to today’s rates. I can see there will be more who aren’t aware or don’t believe the interest rate cycle has turned, and they will be catching a falling knife as rates “blow out” later.

        • Seen it all before, Bob says:

          As Wolf pointed out, 20 and 30 year Treasuries don’t have the yield to attract long-term buyer. 2 Year is paying much more.

          My wishful think is that 30 year Treasuries will start paying 15% like they did in the 1980’s. It must be temporary before rates start dropping. I’d go all-in since if I could make 15% for the rest of my life on my savings, I’d be set. However if I go all-in and inflation rages to 50%, then I’d be doomed. I couldn’t sell my 30 year bonds and I doubt I’d be able to live on 15%. The good news is that the Fed is heck-bent on not allowing 50% inflation.

        • historicus says:

          30 yr treasury went to 16% in early 80s

      • JoanCohen says:

        The BOE is basically restarting QE, despite high inflation .
        The central banks are between a rock and and hard place created by their own enabling of governments runaway spending.
        There is no good ending to this story .
        Either more inflation and QE by the Central banks and complete loss of credibility of the Central banks
        QT ( which has barely started ) , higher rates , a recession and numerous losers on Wall St

        • Wolf Richter says:

          The BOE’s purchases are minuscule, some days 0, some days just over 1 billion, of the daily max of 5 billion and now 10 billion. It’s just calming the waters with words so that pension funds can liquidate their LDIs in an orderly manner. Clearly, the BOE is OK with the rising yields because it is rejecting to buy most of the offered bonds.

          When I published my last article on the BOE’s minuscule or zero purchases, not many people read it because people don’t want to know. It’s a lot more fun to just read and spread clickbait headlines about “expanded QE” or whatever.

      • joer2 says:

        Wolf – your 6% yield has to come from somewhere. Where? Peter Schiff did an analysis on the actual outstanding bonds/durations against possible rollover interest rate curves. Ugly.

        If your 10 year does go to 6%, it will wildly increase Treasury interest cost, and for longer that your hoped for 2-3 year return to lower inflation and associated interest rates.

        Disclaimer: I am going from cash to a bond ladder.

        • Wolf Richter says:

          “joer2” => new screen name or typo? I kinda like it, kind of manly-man: “Bond, Joer Bond, pleased to meet you.”

          Only they newly issued 10-year notes will have that interest rate. So it will take a while.

          But yes, since March 2020, the government increased its total debt by 32% or by $7.4 trillion. Raging inflation (higher tax revenues) is reducing the burden of this pile over time. So that will make it easier for the government to deal with it. But it comes with higher yields.

        • Wisdom Seeker says:

          The idea that “government will go broke due to higher interest payments” is nearsighted thinking. One might almost call it willful blindness.

          Bond interest payments go to bondholders, and Government taxes some of that interest.

          Bondholders spend the rest of the interest, which is to say that goods and services providers receive that money, and Government taxes some of their earnings too.

          Rising interest payments might actually lead to economic growth, an increased velocity of money, leading to more circulation and higher tax revenues.

          The only people who suffer under high interest rates are those whose revenues don’t increase with their interest payments. They’re hosed. But the government will do fine, it always has.

      • Educated but Poor Millennial says:

        I am not financially very smart, that’s why I am still poor. Is it a good time to buy bonds?, if so which one is the best option, 1, 2 or 10 year notes?
        I want invest for about some years then switch to stokes when they are bottomed, possible?

        • Educated but Poor Millennial says:

          sorry for miss spelling, I never check before sending my comments.

        • Wisdom Seeker says:

          It’s a terrible time to buy either stocks or bonds, except for shorter-term bonds. But money-market funds are also paying interest now, so you don’t need to buy bonds at all.

          Keep as little as possible in bank accounts that don’t pay interest.

          Wolf won’t tell you what to do or when to do it, you have to decide for yourself based on your personal situation. But when the tone of this site gets more positive that might be a good clue.

        • rojogrande says:

          Wisdom Seeker,

          I beg to differ. The tone of this site is relentlessly positive or whatever.

        • Auto-outsider says:

          There are many stocks that are very cheap despite some of the comments on this site. Look at the energy sector and the fundamentals behind it. Then look at what is happening throughout the world and decide for yourself if you should be bullish or not.

        • Jason Boxman says:

          For liquid savings for emergencies, say 6-12 months worth, really should be in a high yield savings or checking account. There are quite a few of them out there if you search the Internet. You’ll find 2.5+% rates for these. No-Penalty CDs are another option here.

          For a bit longer term, i Series Savings Bonds are great up to 10k, but you can’t access the money for a year. After that there’s an early withdraw penalty of 3 months interest for another 4 years.

          These are linked to inflation, so a particularly good buy lately.

          Good luck!

        • Wisdom Seeker says:

          @rojogrande – yes, tone is positive between commenters. But negative as to current value of standard investment options at current prices!

          Maybe “more bullish” would’ve been better than “more positive”.

      • gametv says:

        very good point to keep in mind. so actually the Fed might even want to surprise the markets with even more harsh interest rates or bond buy-backs in the short term to kick long term rates higher.

        Failure to do that will cause even worse collapse of bonds in the long term

    • Tom S. says:

      The point is that there’s a gigantic manufactured gap between the price the fed was paying and the price that investors will pay. And that gap will cause dislocations in the 10yr, which can cause instability in major funds. QE will be painful to end.

    • Augustus Frost says:

      Because most buying in today’s financial markets isn’t occurring with their own money. This applies to all tradeable assets.

      How else do you think we ended up with the biggest and longest asset mania in human history? Do you actually think institutional traders and fund managers would take the exact same risks with their own money?

    • Seen it all before, Bob says:


      What is the safe alternative with high inflation?

      1) Mattress lumpy with cash or gold. Both are losing big time to inflation
      Gold isn’t as shiny as the last time.
      2) Savings account at 0.1% – US government insured.
      3) CD at 3.5% for 2 years. – US government insured.
      4) Treasuries at 4% for 2 years – US government backed
      5) IBonds at 9.6% with a cap of 10K/year. – US government backed
      6) Growth stocks – Some have lost 60-70% and continue to lose. Not insured
      7) Dividend Stocks – 3-6% dividend yield with higher risk of losing value and dividend dropping. – Not insured.
      8) Bitcoin – Ha Ha!
      9) Real Estate – mortgage rates rising. Possible 30% loss in value short term.

      This is the point to chose the cleanest sheet out of the dirty laundry hamper.

      IMHO max out on IBonds to cover inflation. Look at treasuries or CDs for safety just to minimize inflation damage (At least there is some income and not potential loss compared to stocks or RE).

      • jon says:

        good summary and good advise.

      • ru82 says:

        Gold – it depends where you live and the strength of your currency.

        Gold is up 38% YTD in Argentina, 8% in Europe, and 13% in the UK.

        In the US Gold is down 8% YTD

        • AverageCommenter says:

          Hmmm… maybe this “gold control” in the USA can play out in my benefit. I need to find a legitimate dealer or buyer in Argentina to ship my U.S. gold to. Pack your bags honey,, we’re leaving on the 1st thing smokin’ to Beunos Aires

  3. eric says:

    Beautifully put…so to speak.

  4. Nevada22 says:

    The situation will get worse, and rates may go much higher than people think.
    The Federal Reserve can not suppress inflation on its own at this point with all the cash currently in the system, ever increasing government spending, and rampant supply problems from a myriad of causes.
    At this point he Fed clearly will not tell the Federal Government to spend less to assist in the inflation battle (remember they said monetary policy alone couldn’t restart the economy in 2020).
    Think of the combination of the following: the Fed hits its current target of 4.6% next year, the interest on current govt debt exceeds $1.2T, other governments continue to be net sellers of their Treasury reserves to support their economies, current govt deficits continue to increase with slowing tax receipts and continued growth of govt spending.
    Guven all that, the odds will be great that the US Treasury will be begging the Fed to monetise (buy new issues from prime brokers 3 days after issuance) to absorb all the new issues they will be forced to find a home for.
    If the Fed doesn’t stop QT with that onslaught of new issues, they will be forced to continue QT and set up a seperate “Treasury Assistance Account,” or some similar named innovation, to simultaneously buy new Treasury Issues as they sell from their current portfolio.
    A new tool in the toolbox.
    At that point, perhaps someone will laugh at the Emperor with no clothes.

    • Harrold says:

      Since 2020 the national debt has gone up about $7 trillion. There’s your inflation, and it’s gonna take a lot of QT to rein that in. This year congress is printing ONLY $1.2 trillion, but the states add a lot more.

      We’ve got a helluva big hole to climb out of. Especially if you consider how it was spent. Very little went to the kind of infrastructure that strengthens an economy. Most of it was spent on paying people not to work. Free beer instead of tools.

      • WolfGoat says:

        I’m with ya Harold, what happened to those Infrastructure Projects? Pot-holes around my town are as bad as they ever were and I still don’t have decent internet!

        • Mr. House says:

          Oh the money went to the pot holes, just the pot holes that line the pants of corrupt politicians and industry insiders!

      • gametv says:

        states must have balanced budgets. tax collections for 2022 will be down ALOT, due to market losses. as soon as real estate collapses, the property taxes will also plummet.

        • joe2 says:

          Caution. Municipalities never decrease spending or property taxes. If property values drop, the mil rate increases.

      • Depth Charge says:

        “There’s your inflation, and it’s gonna take a lot of QT to rein that in.”

        Jerome Powell and his “like watching paint dry” QT is too little, too late.

    • BenW says:

      FY 2023 likely won’t be $1.2T in total interest expense. However, it’s going up pretty quickly. The average for FY 2018 – 2021 was $545B per They just posted FY 2022 which rose to $718B or 32% increase. $900B is definitely in the cards for FY 2023, and $1T isn’t out of the question. But, $1.2T seems a bit high for this next FY. Now, if the Fed has to keep the average treasury rate above 4% all through 2023 and into 2024, then your number becomes a possibility in FY 2024 for sure.

      • Wolf Richter says:

        The total debt jumped by 32%, or by $7.4 trillion, in two years (pandemic deficit spending). So that’s responsible for most of the interest rate increases. just a lot more debt to finance.

  5. Yort says:

    Wall Street are not the only ones Halloween spooked about financial liquidity risks/vulnerabilities/shocks:




    • phleep says:

      Brainard can’t bear the inevitable whining, at even a low volume. Brainard = Neville Chamberlain: teeing up for capitulation, appeasement. The road to heck is paved with good intentions.

      • Wolf Richter says:


        That’s BS. Read the text of her speech before spouting off BS. Tough as nails. But reasonable. What Yort posted wasn’t even from her speech, but a ZH version of a Bloomberg Terminal headline.

        • Depth Charge says:

          So phlegm is parroting ZH? Figures…

        • NBay says:


          Still can’t stay away from the grammar school stuff, eh? “Kick ’em when they’re down” is considered chickenshit where I was raised.

    • Wolf Richter says:


      When the FFR gets to 4%-5%, the Fed needs to hold rates for a while at that level to let markets catch up and settle down. I agree with that. The Fed hiked rates very fast. It’s not a “liquidity” issue, and Brainard doesn’t say it’s a liquidity issue, but an uncertainty issue. There is a little bit of chaos going on as markets are trying to sort out this big move. So a long pause at 4% to 5% — for a year or two — as QT continues and while watching inflation would be a good thing. If inflation doesn’t abate by then, they can go from there.

      • Asul says:

        Two years of 5 % rates. Well, that sounds like blasphemy for a market that ha the habit of taking money at 0 % for 10 years.

        And what about those unicorns getting free money for destroying their balance sheets with bilions of losses?

        It would probably be good to have it for two years, but I’m not really convinced that it would be enough. The FED would have to say that it will have this rates for another 10 years (although they will not), just to destroy this idea of the markets of an “early pivot”.

        • JeffD says:

          The Fed is lowballing everything in their speeches. Inflation will be higher and longer than they are letting on to. They could avoid a lot of *economic* pain by bumping up the pace of QT, but I expect they are trying to avoid pain to *assets* with their current strategy. In other words, they are still shilling for the wealthy, in spite of appearances to the contrary.

        • Augustus Frost says:

          If the cycle turned in 2020, rates are going to go a lot higher than 5% for two years. Try multiple decades at mostly noticeably higher rates.

          Nothing moves in a straight line, so I anticipate that rates could be slightly higher or slightly lower one or two years from now.

          But after that, it’s going to “blow out”.

          The background “fundamentals” will fall into place later, as always happens.

          If this seems improbable, look back to 1981 at the last peak. The long-term fundamentals are actually already terrible right now and the trend change has just started.

      • historicus says:

        I’m guessing one more hike…..then the language will be in the vein that the Fed will now pause the rate hiking to allow the lag time to kick in…..but the QT in the background will continue and out of sight of the light weight discussions on cable business stations.
        I still think the election could be a turning point….as there will be a perception that a change in leadership in Congress may pave the way for a better national energy policy, one that would tamp down inflation, eventually.

        • sunny129 says:

          “election could be a turning point”

          On what basis?
          You think GOP can contain inflation or they will reduce deficit spending, better than Dems?

          Changing energy policy, will take 2-3 yrs to get the oil flowing. Who will take the risk to invest for the long term
          Both parties are the same just different hat.

        • Escierto says:

          That was the funniest comment that I have seen in a while. You actually think a Republican Congress will accomplish anything beneficial for the economy? Dude, all that matters to these clowns are the culture wars – they are like the Taliban except they speak English.

        • historicus says:

          Curb the massive spending by the House
          open pipelines and exploration
          What effect on the inflation psychology and eventually the inflation reality?
          Geo politics the wild card
          Given, there still is $4 trillion extra money sloshing around the economy

      • Augustus Frost says:

        This “pause” sounds about long enough before rates “blow out” which is going to happen later.

        Either that or the USD is going to tank.

      • AV8R says:

        Hello and thank you for another great insight into these markets. BoE with another intervention today. I guess there’s one buyer left.

        Don’t know if your at all interested in the topic of Quiet Quitting but I see it as the most inflationary sector of the economy: wage “growth”.

        When an employer has to pay 100% of agreed compensation for 70% productivity THATs inflationary.

        • Bulfinch says:

          That’s not my reading of quiet-quitting at all; it’s a cheesy news cycle-friendly buzzword for when workers trim away the xtra asks and perform only the tasks as outlined by the job description only within the hours defined. So maybe you’re seeing only 100% productivity vs 125% before workers burned/out/wised up. Actually, research suggest that employers are likely seeing better quality work from less hours in the harness. Seems not unreasonable to me.

        • Wolf Richter says:

          The BOE’s purchases are minuscule, some days 0, some days just over 1 billion, of the daily max of 5 billion and now 10 billion. It’s just calming the waters with words so that pension funds can liquidate their LDIs in an orderly manner. Clearly, the BOE is OK with the rising yields because it is rejecting to buy most of the offered bonds.

          When I published my last article on the BOE’s minuscule or zero purchases, not many people read it because people don’t want to know. It’s a lot more fun to just read and spread clickbait headlines about “expanded QE” or whatever.

        • Augustus Frost says:

          I see “quiet quitting” as part of a secular trend change in attitudes.

          It will be interesting to see the “quite quitting” collide with much higher unemployment in an extended economic contraction.

        • Harrold says:

          Companies are sure hoping for high unemployment. But with unemployment at 3.5%, its not going to happen in the near future.

        • sunny129 says:

          ” It’s just calming the waters with words so that pension funds can liquidate their LDIs in an orderly manner.”

          Sounds logical but LDI have leverage of 7-10X. BOE is jawboning along with pasting band aid day by day to contain the bleed.
          How long they can afford to play, in weeks?
          The credibility of BOE is hanging by the thread, especially when inflation rate is already 10%

        • sunny129 says:


          Addendum my previous comment

          “My message to the funds involved and all the firms is you’ve got THREE DAYS left now,” Bailey said at an event in Washington on Tuesday.

          “You’ve got to get this done. The essence of financial stability, is that it (intervention) is temporary. It’s not prolonged.”
          -BoE Governor Bailey in DC today

          Is this what calming the mkts!?

      • Depth Charge says:

        “So a long pause at 4% to 5% — for a year or two — as QT continues and while watching inflation would be a good thing.”

        You know how painful two years of raging inflation is for the little guy? I’ve got to disagree with you on this, Wolf.

        • Wolf Richter says:

          If short-term rates at at 4-5%, and the yield curve uninvents as it would when things settle down, you might have a 6% 10-year yield and 7.5% mortgage rates, and my guess is that in this overindebted economy, it will knock down demand enough to push inflation down. We’re already seeing it big time in the housing market, and we’re not even there yet. But this stuff takes a while to play out.

          What I don’t want is some kind of huge meltdown where the Fed starts the QE crap all over again. I’d rather get there slowly and be done with QE.

      • Yort says:

        Agreed. FFR in the 4.5-6% zone gets a little scary as many gigantic “players” have leveraged unwisely due to global ZIRP forcing yield schemes, and oddly believing in a perpetual state of low inflation was somehow guaranteed, as if the last few thousand years of inflation history was an anomaly…

        Also the “acceleration” to 4.5–6% FFR concerns me, not necessarily the “velocity” cruising at 4.5-6%. And the 6-9 month effect delay makes it even more tricky…

  6. phleep says:

    All this prolonged Fed machination created huge constituencies that start squealing in pain for any interruption (rather, re-pricing, pay cut) in their free-riding gravy train. We should stay calm during a period of their prolonged squealing.

    Many of these are pension funds and the like, with big sunk costs in treasury securities. I know several bloated, vastly overpaid retirees who deserve nothing better than a diet, and would benefit from it.

    • Tyler says:

      The whole of these government defined benefit pension plans is ludicrous. Work for the government for 20 years and receive 30+ years of retirement income (with cost of living increases). That’s just welfare. If we slashed their welfare payments, maybe it would help with the labor shortages. Although not sure what skills they would have to offer.

  7. SomethingStinks says:

    Hey Wolf, FYI you got mentioned in the comments on Zerohedge. Article titled here-comes-open-revolt-reeling-europe-lashes-out-fed-bringing-us-world-recession. Ctrl + F, your last name.

    • Lili Von Schtupp says:

      Had time to kill before work and browsed the full comment thread before finding the Wolf mention. Half an hour of my life I’ll never get back.

      Mos Eisley spaceport, if the scum and villainy was based in angry political victimization. Certainly makes you appreciate Wolf’s site and rules. Nothing against healthy cynicism or a good conspiracy theory by any means–even broken clocks are right twice a day–but yikes.

      The comment was laughable. Powell is influenced externally? Hot take.

  8. Fromks says:

    This is a great and succinct explanation on why higher yields demand lower prices for existing bonds.

    Similar argument could be made for SP500 or other index of choice.

  9. bulfinch says:

    Aside from the raging variety, has anyone else noticed instances of stealth inflation? Deeper divots in the bottom of food cartons; more cake-y outers/less figgy centers; thinner sliced slices…I ask this after having dipped a spoon into my favorite hummus just now only to find a huge air pocket where half the contents collapsed by a third.

    • JeffD says:

      Yes! Cookie ice cream has more cookie and less ice cream! Trader Joe chicken curry seem to be 60% curry sauce and 40% chicken, by weight! I’ve noticed it on other things, too, but can’t remember specifics off the top of my head. Glad someone else noticed this, since it seems to be a brand new way to rip people off. “Where’s the beef!!” is spreading to more products!

    • AB says:


      Can’t this be interpreted as a sign that producers can’t raise prices any further because revenues and profits would decline if they did?

      The surreptitious methods you refer to infer the first line of consumer resistance to high prices has been noted in the boardroom. The second and probably last line of resistance is here also, as evidenced by your post. The back turning should follow. It doesn’t seem like you’ll be buying your favourite hummus as frequently, if at all.

      This isn’t nearly enough to say inflation is softening or even levelling but your observation is quite insightful and might be ahead of the data.

      • bulfinch says:

        I’d bridle less at a higher unit price than the legerdemain of quantity/quality gimmicks. Talk about insult to injury!

      • joe2 says:

        Most stuff you can make yourself and without the preservatives tastes better. And with all the spices your kitchen smells great. For example basic kalbi/teriaki sauce is just soy sauce, brown sugar, sesame oil, garlic. Compare to the label on a bottle of sauce in the store.

        Get a cheap freezer for about $100 and buy on sale.

    • Somethingstinks says:

      Restaurants are pulling that crap too… shallow spread out plates so the food only looks like a decent quantity. That after raising prices almost 50% and then they bring out the check with suggested tip of 18,20 or 22%. Unreal.

      • Brant Lee says:

        I went to a buffet that put up a sign: ‘Choose one meat only, please’.

        But I fooled them. I hid the meatloaf under the mashed potatoes and gravy then threw on a porkchop. But I’m having a hard time living with myself.

      • gametv says:

        My wife actually saw a few price declines at Costco recently. Still higher than pre-pandemic, but down a little. Some of the food price spikes are related to the bird flu that is hitting chickens, not just inflation trends.

      • Sams says:

        Well, long time since I have been to a resturant in the USA. But if the change in size served just have been adjsuted down it might be good for the healt of the people.😉

    • David G LA says:

      Hagen daz pint is no longer a pint. that frosts my buns.

      • Depth Charge says:

        That happened nearly 5 years ago. I stopped buying it then, because I could still buy an actual pint of Ben and Jerry’s, though I think Haagen Dazs makes better ice cream. Then B&J went all woke and I canceled them like 3 years ago, instead opting for other brands in 1.5 quart size containers. Ice cream is an almost useless “food,” so I may quit altogether one day.

        • Harrold says:

          B&J have always been hippies.

          Why did you just now notice?

        • Depth Charge says:

          “B&J have always been hippies.

          Why did you just now notice?”

          Huh? Hippy does not equal woke. Generalize much?

        • Harrold says:

          What does ‘woke’ mean to you?

          They have been committed to social justice since the 1960’s. When did you notice?

        • Depth Charge says:

          “What does ‘woke’ mean to you?

          They have been committed to social justice since the 1960’s. When did you notice?”

          Considering Ben and Jerry’s didn’t even exist until 1978, you seem to just be making shit up at this point.

          Anyhow, when I saw a flavor called “Resist” or some such in the ice cream section, I was done forever. That was like 3 or 4 years ago or something, and I haven’t bought any since.

        • NBay says:

          A lame “response”…..stick with your adjectives, you are not much good at anything else. As they said on South Park, “it didn’t work ’cause you ain’t prez”

    • The Bob who cried Wolf says:

      Secret deodorant new container is sleek and looks to be taller. Less material inside, including the actual plastic parts. Shrinkflation, stealthflation, etc can probably be a whole topic.

    • Lili Von Schtupp says:

      Wholesale club membership is now useless. Wasn’t much saving before the inflation hit, but now the packages are shrinking to grocery store size. Lots of products straight up unavailable now, particularly the generic brands, and a lot less inventory overall. Noticing a sharp decline in shoppers at my club, its pretty much dead in there even on weekends. Not renewing my membership when its up this year, and I’ve had it for 10+ years.

      • El Katz says:

        That phenomena (reduced customers) hasn’t hit Costco here as of yet. Place was slammed last Thursday – mid day. Lines 5+ carts deep and most registers open.

        We like Lighthouse ranch veggie dip. They cut the container in half and left the price alone. Tillamook ice cream went from half a gallon to 1.5 quarts and they raised the price. I sent a “customer contact” and the story was they had a choice of cutting down on the goodies inside (caramel, fruit, etc.) or reducing the size so they went for the size. I did, however, get two free 1.5 quart ice creams and a nice letter from them.

        More air in potato chip bags so we just quit buying them. Don’t need the carbs and fat anyhoo.

        Perrier water went from $14 a case to $19 at Costco. Mexican Coke (real sugar) went from $19 a case to $32!

        It’s gotten to the point where I won’t even look at the prices anymore. I shop from a list and that’s all I get. Plus, I do all our shopping on geezer day and get my 10% discount which reduces the sting somewhat.

    • AV8R says:

      Quiet Quitting.

      100% compensation. 70% productivity.

    • Flea says:

      Large eggs are now medium eggs

    • NBay says:

      Watered down no-fat milk in gal jugs?…….some times a big chunk of ice. I don’t think my fridge is that unstable. Moved up one grade from bottom shelf store brand, so far, so good. I drink a bit over a quart a day, so my sample size is pretty good.

  10. Beardawg says:

    Never thought I would have to understand bonds / securities. With equities in the tank, a 3-4% return (net -5%) seems pretty good….how sad is that ?

    • Augustus Frost says:

      You don’t have to own equities all the time.

      Stocks remain absurdly overpriced and should generate negative nominal returns over the next decade.

      Probably not that different for (residential) real estate.

      That’s what happens with an unprecedented mania.

      There is no entitlement to minimum returns. The actual real production doesn’t exist to accommodate perpetual increases in financial claims. That’s what inflated asset prices and “printing” represent when it out-runs real production for decades.

  11. SeanDF says:

    Maybe the bond market will actually start working again. Between Greenspan, Bernanke, Yellen and Powell, we’ve monetized “liquidity” into inflated asset prices. Figure at least 50% crash on most everything, especially stocks, bonds, real estate, 90-100% on SPACS, crypto and all the other imaginary nonsense. It’s going to be a long, nuclear winter!

    • perpetual perp says:

      Forty years of tax cuts and loophole dodges is where the inflation came from. Forty years! That’s what created all the huge income inequality.

    • Asul says:

      You forgot that Bernanke got his Nobel prize, so he must have done something right. Right?

      Don’t know exactly what that is, but after GFC of 2008-2010, the spectre of deflation got everyone scared and they balooned the world economy into this monster, that can be defeated only with sacrifices of virgins (a bloodbath in all markets).

      However: does anyone have the balls to do what it takes?

      My answer is no, but I’m still waiting for reality to prove me wrong.

      • Sams says:

        Bernanke got “Svenska Riksbankens price in memmory of Alfred Nobel”. That is, the Swedish Central bank hand out the price.

        As the head of the FED, one of the most important central banks he get a price form one of the other central banks. He may have done something right, I would guess something about politics.

        Or it could be one central bank rubber stamp the politics of another central bank.

      • historicus says:

        “You forgot that Bernanke got his Nobel prize, so he must have done something right. Right?”

        WSJ 10/11/2022
        “We’d argue now, as we argued at the
        time,that Mr. Bernanke and the Fed created the
        monetary conditions that led to the worst financial panic in 80 years.”

        It was Bernanke that created the 2% inflation goal (despite stable prices)
        It was Bernanke that started QE, described in a WSJ article in July of 2009 how it would unwind, and declared that when unemployment dipped below 6.5%, rates would begin to normalize.
        We all know that unemployment went to 3.5% and we got MORE QE.
        I’ve got a prize for Ben, and it aint Nobel.

        • NBay says:

          Heard he has a cushy job at a big hedge fund now, is that right?
          Not a very dedicated academic, if true.

  12. JeffD says:

    So, speculators who didn’t mitigate risk lose 25% of the value of their assets. Decisions have consequences. How is it my problem when I wasn’t involved in your reckless decision making?

    • Nat says:

      Yes, you and Wolf are saying the same thing. He is explaining the thoughts that are causing the whining on CNBC and basically concludes with what can be sumerized as “ignore these whiners.”

      He is not trying to make readers agree with them just understand their motivation.

  13. Michael Engel says:

    1) OPEC cut production to protect oil prices from the “Transitory Inflation”.
    2) Since 2014 the Fed raised rates. JP decided to extract negative rates from the world, but Germany didn’t care. In Oct 2018 US10Y minus DET10Y was 2.8%.
    3) After 2021 JP tried again. This time around Madam ECB and US consumers followed his leadership. The high inflation bent their will.
    4) US10Y minus DET10 is in a trading range between 1.5% and 2% for a
    year and a half, since Apr 2021. But Japan10Y is only 0.25%. US10Y minus
    Japan10Y is 3.6%. JP have a lot of work to do with Koruda.
    5) One day the ECB and the Fed might be more synchronized. US10Y minus
    DET10Y will hover around zero. US & Europe in Harmony with zero Gravity.
    6) In weight free environment the Fed and the ECB can raise rates to
    a normal level without friction.
    7) Do u like JP ==> NO !

    • Sams says:

      Re 1), inflation, the monetary part actually have made oil go down in price if adjusted for monetary inflation.

      Adjust the oil price for “US dollar printing” and the price have lagged the last years. Same with other comodities.

      The FED better start deflating the amount of money to make prices stop climbing. And no, high interest rates are not the answer, interest generate more money.

      What with introducing serial number on all digital stored US dollars? And stop issuing new serial numbers? That would effectively cap the amount of money.

  14. Bruce says:

    What about interest payments on the debt? At some point the USA will eventually be bankrupt – and I think we’re ALMOST there

    • Wolf Richter says:

      The US cannot go bankrupt ever, it’s impossible, since the US can print all the money it wants to pay its interest payments and refinance existing debts.

      Where you see the problem is in inflation, which destroys the purchasing power of everything denominated in dollars.

      • Tyler says:

        But if they have to print money just to pay the interest on the outstanding debt, doesn’t that just feed into the inflation problem? At that point the paper becomes worthless does it not? If you can create something that is worth nothing, are you not bankrupt at that point.

        • Wolf Richter says:

          That’s why the Fed has to crack down on inflation and push up yields, and that will cause some navel-gazing in Congress, and maybe we’ll have some kind of discussion about how to reduce the deficit finally.

          But I have to tell you that 8-9% inflation over several years is lowering the burden of the debt. So after a few years of this kind of inflation, the US debt-to-GDP ratio may be in the 90s or lower, lower than it has been in years.

        • NBay says:

          “Reduce deficit fiscal policy” means more Federal taxes, especially estate tax. Why have only 4 brackets? Make IRS FULL part of the Military using ALL military methods. It’s no different than the Coast Guard running down a load of dope or knock-off luxury items. And they can and will use intelligence agencies and shoot this brand of “cheating” people.
          Would love to see Delta Force in Caymans, etc, just “dropping in” and clearing out with paperwork. Or Delaware.
          Nation of (enforced) LAWS.

          Cheating is cheating.

      • Spencer says:

        The choice is between default and hyperinflation.

  15. Max Power says:

    The actual issue treasury bond traders are having isn’t so much with liquidity per-se but with volatility. The bond MOVE index is absolutely off the charts, which is making it difficult for market makers to provide the typical market depth normally associated with the treasury market. This situation makes it seem as if liquidity is impaired, which it kind of is, but not for the typical reasons one would expect. As Wolf indicates, there’s plenty of money on the sidelines waiting to dive into treasuries when the price is right.

    Interestingly, the VIX – the equity equivalent of the MOVE index has been relatively calm given the current circumstances. This is a very odd situation indeed, especially when juxtaposed against the MOVE index.

    • Augustus Frost says:

      No, what they are actually complaining about is losing money.

      Volatility isn’t a problem any more than “lack of liquidity” as long as most everyone is making money.

      • Max Power says:

        No, you’re confusing market makers with investors. Typically, bond market pricing doesn’t gyrate nearly as erratically as it has been recently. That causes a lot of problems for market makers (which are key to ensuring sufficient liquidity in the bond markets).

      • Augustus Frost says:

        Wall Street wouldn’t be complaining about volatility if they weren’t losing boatloads of money which they presumably are in 2022. This is the worst bond market in decades (I think 1949) and it’s evident a lot of people weren’t prepared for it.

        That’s their actual complaint. There would be no complaints if they were making money.

  16. WolfGoat says:

    Here, here… well said Wolf! Spot on as usual!

  17. Zero Sum Game says:

    -Has anyone yet considered that the Nobel Prize selection committee that picked Ben Bernanke might be filled with representatives of large asset holders being clobbered by the current QT program?
    -And those clobbered asset holders want a return to QE that Bernanke started?
    -And they are dangling a sly Nobel trinket in front of Jay Powell, who is obviously concerned about his legacy of not leaving behind massive inflation, so Powell can pivot to the QE they want again?

    Perhaps slightly too conspiratorial, I admit.

    • Sams says:

      See above, the Nobel Commitee have nothing to do with the “Nobel Price in Economics”.

      It is a price handed out by the Swedish Central bank. “In memmory of Alfred Nobel”, but the economy price is a central bank prize.

      To someone the central bank think is improtant and have written something important about economics. (That fits the central banks viewpoint.)

      • Zero Sum Game says:

        Good catch Sams, I didn’t explicitly know it is a central bank prize. Unfortunately, this stokes the conspiratorial fires a bit more for my earlier post you responded to, at least to a slight degree.

    • Harvey Mushman says:

      I wouldn’t be surprised if you are correct.

  18. Michael Engel says:

    1) The Fed and the ECB are far from high interest rates. They are well below normal rates.
    2) The Fed and the ECB have to reduce gravity between them, before raising rates in harmony.
    3) Next year, y/y, inflation might be minus (-)6%. Otherwise, next year inflation will be above 10%, entering high inflation territory between 10% and 20%. Hyperinflation start at 20% going to infinity.
    4) Inflation might be with us for years because it’s transitory and sticky. It might osc between 2% and 9%. Central banks will have to adjust like traders in synchrony. If wrong, cut your losses, curb ego…
    5) After years of negative rates central banks intend avoid diving underwater with oxygen tanks.
    6) The risk of recession is high, but we might not get there.
    7) The markets will do what they want to do. If the monthly SPX have a close under Jan 2020 low, red alert. Red alert will activate the interception button.

  19. Snowycrow says:

    Hey, Wolf. Plenty of liquidity in London. Looks like they’re about to start playing whack-a-pivot

    • Wolf Richter says:

      The BOE’s purchases are minuscule, some days 0, some days just over 1 billion, of the daily max of 5 billion and now 10 billion. It’s just calming the waters with words so that pension funds can liquidate their LDIs in an orderly manner. Clearly, the BOE is OK with the rising yields because it is rejecting to buy most of the offered bonds.

      When I published my last article on the BOE’s minuscule or zero purchases, not many people read it because people don’t want to know. It’s a lot more fun to just read and spread clickbait headlines about “expanded QE” or whatever.

  20. Augusto says:

    What the finance industry fears is clients selling their stocks and going money market or bonds because of yield. That will not only push the market down (crash?), but less money for commissions, as people who sell and go to cash usually will stay there for a while and don’t trade stocks. Personally, I’m about 50% cash, with a broker constantly bugging me with “options”, meaning buy some stock or other. I think this market has a lot lower to go despite the industry whine of “transitory”, “pivot”, and the never ending refrain of “buy, buy, buy”.

  21. david pare says:

    Definitely with the yield curve inverted, I am not eager to jump into the 10 year either at – what is it – 3.8%? Especially with inflation “measured” at 8%. Who wants to be the bond bagholder if/when things explode as in the 70s? Not me.

    In terms of assessing the likelihood that the Fed rate increase plans will contain “inflation” – my question is, what’s really causing inflation?

    Options: years of low Fed rates, years of QE, property bubble, stock bubble, stimulus checks, “Inflation Reduction Act” (deficit spending), labor shortages, not enough oil production, not enough natgas production (at least in Germany). Any others?

    I mean, it is probably all of it. But what’s the weighting? If “oil shortages” end up being half of the cause, then rate increases may not be as effective at “stopping inflation” as we might hope, and waiting to pick up the 10 year would be the smarter bet.

    Right now it seems like there are a lot of moving parts. I wish I had a good model for all of it. And the weights for each contributing element – that would be useful too.

  22. Michael Engel says:

    1) The market might soon find it’s temp floor, rise to a lower/higher high, before going a lot lower.
    2) Another option : the market will go straight down to hell without stopping.
    3) There are many options to play with, for fun and entertainment :
    After/ before closing the Dow Nov 2/9 2020 gap the market will make a new all time high.
    4) We don’t know what will happen next. AI cannot tell the markets
    what to do. The markets don’t care about me and u. The only thing investors control is buy & sell.

    • Alku says:

      4) is ultimate words of wisdom!
      Should have been nominated for the Nobel prize instead of BB :)

      • Harvey Mushman says:

        That reminds me of the movie “Forest Gump”. When Forest puts his rifle back together in record time. His drill Sargent told him he was a g*ddam genius. If it wouldn’t be such a waste of a good soldier I would recommend you for Officer Candidate School!

  23. Bobber says:

    I think the Fed could be tested very soon with a rapid market drop.

    It’s October, the Ukraine matter is nowhere near settlement, and Big Tech seems to be dropping hard now. Plus, the market just beat back a bear relief rally, and that won’t be justified again until there is more downside pain.

    NOT looking good for stockholders.

  24. Mendocino Coast says:

    What is the point of righting the economy getting rid of the Inflation if the Banker Mentally in charge is just going to do the same thing all over again
    so He can make Money with the full backing of the President Biden ?
    The Charts tell it all just read back over the last year and farther .

    With the continued non economist ? at the head of the Fed whats the point ? may as well just get rid of the Fed and start over as that system has failed totally .
    the whole system it seems has failed and it looks like only 2 class’s shall remain Rich and Poor forget the rest 8% + inflation is nothing wait until
    25 % inflation . Most only the Rich are concerned about the stock market
    as they only want Gains I don;t blame them however whats left with no middle class only the poor lining the streets now .

    Thank You for the research Wolf lets hope for economic sunshine again

    • gametv says:

      I think the bigger issue going forward is the Federal government spending. We need to cut the yearly deficit in a massive way.

      When you really look at the underfunded liabilities, it is atrocious.

      There needs to be a complete re-think on our economy.

      I do like that there seems to be interest in using government regulations/laws to bring production of technology back into the US. Although, once again it is likely just another handout of money to the rich.

  25. Rosarito Dave says:

    It seems all the markets turned around today after a quick morning descent. The only thing I could see was that the Consumer Inflation Expectations Survey came in lower. My question is… Why the hell would that survey have much meaning… These are generally financially under educated people who don’t really follow closely what the reality of the situation is.

    It’s nice that they feel a bit optimistic about lower inflation, but 1,300 households seem to have an out sized effect here…

    I guess it’s just the latest data point that Pivot People will hang their hats on… until Thurs CPI.

    I wouldn’t be surprised to see the markets rally thru tomorrow’s close…

    • Wolf Richter says:

      This market was ripe for a bounce. Thank god we got one. Last thing we need is a huge sell-off before a crucial Fed meeting. Things need to settle down by the end of October so that the Fed can do what it wants without being yelled at by Wall Street.

    • SeattleTechie says:

      There is also BoE’s ‘expansion’ of their ‘QE’ or whatever that is. 10 year yield briefly touched 4 and dropped back.

    • WolfGoat says:

      I’m calling the descent ‘not over’. I went back in short on that bounce. Call me a fool!

  26. SeattleTechie says:

    Thanks for the article. Just contemplating a little on the “all heck breaking loose” scenario. When that does happen, do we expect 10 year yields to plummet immediately? Or does the fed actually have to drop rates and start QE for that to happen? I just don’t see a QE possible even in that scenario. Most likely the fed will just stop hiking and tell the markets to suck it up. What happens to yields when fed pivot falls way short of market expectations, while all heck is breaking loose?

    • WolfGoat says:

      Well, there’s always what I call the fear factor… when all heck breaks loose in Equities the herd tends to park cash in Bonds. That suppresses the yields. I’ve been playing a bit of those rotations since the beginning of the year to pretty good effect.

      The other thing to keep an eye on is the Corporate Bond Market… it has trended up a bit with the rise in Fed rates, but my sense is they are behind the curve with their Junk and so that make take a big hit here soon.

      ICE BofA BBB US Corporate Index Effective Yield is at 6%, and when all heck hits the fan we could see 10-15% there.

      My 2 cents for what it is worth.

      • WolfGoat says:

        Take a look at the ICE BofA US High Yield Index Effective Yield and the ICE BofA US High Yield Index Option-Adjusted Spread… it’s only at 5% between the Fed and the worst of the Corps. That’s barely breaking even with inflation at 8% considering the risk.

        • sunny129 says:


          The Corporate DEBT to GDP was 45% at the height dot com bust in 2000 and again in 2008. And now it is close to 50%!

  27. Bob E says:

    At some point I’m expecting a real buyers’ strike once the bond market loses faith in the Fed. Let’s face it, Powell and Yellen have been 100% wrong on each major call to date – there is no inflation, the inflation is only transitory, it is starting to abate, there will be a soft landing, etc.

  28. All Hail the Fed says:

    I wonder will we see a market rally @S&P 2800 level. OPEC just took another big shiiit on Biden as it cuts production. What happened to the Risk On players, MEME stocks, IPOS. What is the next Big Bubble or Pandemic. The book is on in DEC rather wait for dividend pay outs than buy into bonds right now. Big money waiting patiently for the bottom, we all know it’s coming……there no walking out on this Fed family Christmas.

  29. Jdog says:

    That the bond market is huge is not really the issue, the issue is whether it is growing, or shrinking. If it is shrinking due to loses from forced sales as we are seeing clearly in the UK, then the overall pool that Treasuries draw from is also shrinking. For anyone put in the position of having to sell bonds into this market, the losses are considerable, and those loses are irretrievable money destruction.

  30. Corporate Bond Help says:

    When Corporations took on debt by issuing Corporate Bonds (cheap money over the last few years, locked in at a low rate), we know that the stock buy back programs were purchasing their own Stocks at a higher Stock Price, thus, driving up stock value. Of course, when stock price goes down, corporations will lose value on the stock they own from the buy back program.

    What I don’t understand, is why would “bond” servicing costs go up because the stock value goes down? Isn’t bond servicing costs fixed?

    • Wolf Richter says:

      In terms of your first paragraph: companies that buy back their own shares don’t treat them like an asset, and cannot make money off them. Those shares are either canceled and disappear, or they become “Treasury Stock” where they don’t matter. Buybacks burn cash and reduce the number of shares outstanding, that’s all they do. Companies will never make or lose money because of price changes of the shares they bought back.

      In terms of your second paragraph: Yes, bond interest is fixed until the bond matures. Then the company has to pay bondholders the face value of the bond. Which means generally that the company will issue new bonds beforehand to have the cash to pay off existing bond holders. Those new bonds will have much higher interest rates, and servicing this new debt will be more expensive.

  31. sunny129 says:

    Ambrose Bierce

    With 75 basis increase in rate coming at the end of this month and probable another 50-75 basis in Nov/Dec, I am shorting 20 yr treasury with TMV and TTT. but long on 3 month bills (TBIL), 3-7 yr (IEI) and 7-10 yr (IEF). I nibble them slowly

  32. SoCalBeachDude says:

    What was the highest 30 year Treasury rate ever?


    Historically, the United States 30 Year Bond Yield reached an all time high of 15.21 in October of 1981.

  33. RedRaider says:

    During the 70s I remember walking down the main drag in Milwaukee during lunch hour. On one of the cross streets there was a Schwab office with one of those electronic Ticker boards. Periodically it would flash short rates 20%+, long rates 10%+ or words to that effect.

    I can remember thinking to myself “that’s a no brainer”. Only I was a poor boy and couldn’t take advantage of the situation.

    Let’s add it all up: 10% payment for each of 30 years: 300%. And if rates go down to a more normal 5% your bond will double in value: 100%.

    That’s a quintupling of your money. A $500k retirement fund will only cost you $100k. In retirement that $500k fund should produce a $20k income stream. Right now SS, for me, is yielding $20k. And on top of that $40k/year you’ll have to add the income stream generated by your 401k.

    The $500k fund is under your control. If you convert your 401k to a self directed IRA so is that. Sadly, there is nothing you can do about that.

    In short, there’s good reason to buy 30 year treasury bonds. Just buy them at the peak in the interest rate cycle.

  34. sunny129 says:

    Breaking news: Calming the mkts!?

    After doubling-down on its pension fund bailout scheme, BoE’s Bailey spoke in Washington this afternoon, initially warning that “market volatility went beyond bank stress tests” (which is scary), then reinforcing that there is a “serious risk to UK financial system stability,” noting that the buying program is “temporary”.

    But the piece de resistance was his reminding the market that BoE will be out by the end of the week, adding a simple threat…

    “My message to the funds involved and all the firms is you’ve got THREE days left now,” Bailey said at an event in Washington on Tuesday.

    “You’ve got to get this done. The essence of financial stability, is that it (intervention) is temporary. It’s not prolonged-

    Wonder how the mkts open tomorrow!?

    • SeattleTechie says:

      Then seriously, why even do it? Why not let the free markets take care of themselves? I don’t understand how exactly those three days change the outcome?

      • historicus says:

        The “truth” of real price discovery

        and Jack Nicholson’s comment…..”they can’t handle the truth”

  35. eric says:

    Wolf, your take on the chatter about the Fed sending $3b overnight to the Swiss, supposedly to take pressure off dollar rise?

    It’s the latest Fed-will-ease-soon rumor: what is breaking are sovereign finances.

    • historicus says:

      Credit Suisse?

    • Wolf Richter says:

      $3 billion?? The Fed does something in the single-digit billions? I mean, Elon is trying to not buy Twitter for $44 billion. Why would I worry about $3 billion between two central banks? Who are these jokers that even make headlines out of this?

      But here’s the detail: $3.33 billion, trade date Oct 5, matures on Oct 13.

      • says:

        Easy, big fella. Not selling anything, just trying to tease out what will be The Next Big Thing That Breaks now that your First Thing is wreaking havoc.

        Sovereign debt? How does that start?

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