The yield on the 10-year U.S. Treasury note is back above 2.00% at this hour, having surged above that level during the trading session after Independence Day.
Even at a 2.03% yield, it’s still down more than a hundred basis points from a 3.24% yield as recently as November 8, 2018.
A couple weeks ago, The Wall Street Journal offered the conventional explanation for what’s going on:
The collapse in bond yields since this spring has been stark, swift and global, upending expectations that the world’s economy would be strong enough to support a return to normal monetary policy after years of easy money. The drop says investors expect a recession may be looming…
I guess we were as high as 2.61% on April 17, so “since this spring” makes some bit of sense. And the “recession” part is likely true, of course. But that’s not what bond markets are signaling.
What The Bond Markets Are Telling Us
They’re reflecting the fact that fast-money speculators have the Federal Reserve, et al, by the tail.
Indeed, it’s a deathly fear that has monetary central planners about to unleash new rounds of both rate-cutting and bond-buying… they have to keep equity indexes aloft… they talk about “wealth effects”… but, really, they just don’t want to disappoint their friends in high places.
The end of these particular “risk on” bubbles they’ve inflated throughout the financial system likely means the end of Bubble Finance – and their end, too, as key players in Imperial Washington’s court.
What’s happening is another round of central bank front-running.
Speculators are essentially assured that the carry-trade cost will be lowered at the conclusion of the July 30-31 meeting of the Federal Open Market Committee (FOMC).
Not only that, it’ll stay at negative nominal levels in Europe and Japan. That’s due to recent “open mouth” policy assurances by European Central Bank Chair Mario Draghi and Bank of Japan Governor Haruhiko Kuroda. Of course, the Tweeter-in-Chief is all over his central banker, Jerome Powell, to follow suit.
The “Signal” Is Simple
The “signal” amid endless noise is straightforward: Back up the trucks to the bond pits. That carry spread will be widening, and prices of the assets being carried (i.e., sovereign and corporate bonds) will be rising.
This is the destruction of honest price discovery in progress.
And it exposes the extreme vulnerability of our financial system to another thundering collapse.
Without the day-in, day-out rigor of honest price discovery, bubbles eventually burst.
And you set the table for unhinged politicians like Donald J. Trump. Once the Great Disruptor’s work here is done, something of his like will surely creep from the Left’s woodwork. It may already be happening. Perhaps it’s “AOC-and-MMT-style socialism,” merely in search of a messenger.
And perhaps it carries that key day in November 2020.
So, sure, let’s abide the mainstream narrative. Let’s take the WSJ’s interpretation of the 10-year U.S. Treasury yield’s plunge below 2.00% and the fact that more than $13 trillion of sovereign and corporate debt trades at negative yields…
Folks, not much short-term “good” can come of that, either.
“Hooray For Our Side”
Desperate times call for… “common sense” measures.
And these are desperate times… Markets are corrupted by monetary central planning. They’re confused. And the road back is going to be treacherous.
We’re looking at a major re-pricing for all financial assets. And thousand-point intraday or day-to-day swings are part of that equation. Those can be frightening… for “buy and hold” investors.
I have a different approach, one that combines strategy and tactics into a plan flexible enough for you to survive and thrive amid the coming chaos. It’s called “The Stockman Model.”
All we’re after is a little stability, perhaps a chance to pocket a windfall when opportunity presents…