Tag Archives: bond yields

Bond Yields Today

The 10, 5 and 2 year yields in the US are aligned in a risk ‘ON’ way and the market is showing no sign of stress from the Iraq situation.  That is good, in that Iraq is not screwing things up.  Also good is that gold is down today as the yield spreads indicate it would be (again, if one day can be taken in a vacuum).  Again, Iraq seems to be out of the picture today.

I’ve also included the Spanish 10 year vs. the German 30, which is a sort of junk/quality spread to apply to Europe.  It indicates they are feeling a little risk averse over there in Europe today.

10, 5 & 2yr US yields, Spanish 10 and German 30, from Bloomberg

‘Anti Fragile’

By way of John Mauldin, my inbox received these thoughts by Louis-Vincent Gave as part of an article entitled Why Are Bond Yields So Low?

Some points of interest…

An inherent level of systemic risk? Most people intuitively feel Karl Popper’s observation that: “In an economic system, if the goal of the authorities is to reduce some particular risks, then the sum of all these suppressed risks will reappear one day through a massive increase in the systemic risk and this will happen because the future is unknowable”. In other words, suppress risk somewhere and it comes back with a vengeance to bite you on the derriere at some later date. Look at 2008 as an example: we cut up credit-issuing risk into tiny parcels and distributed it across the system through securitization, only to see the banks take on a lot more leverage and ultimately sink their balance sheets on instruments they failed to understand. Hyman Minsky summed up this inherent contradiction well when he stated that “stability breeds instability”. In other words, the more stable a thing is, the temptation rises to pile on leverage, which makes that “something” more unstable on the back end.

This is the whole point, that it is permissive policy that instigates bad financial behavior (encourages ever riskier speculative activity), not that the policy itself is the culprit where the inevitable unwinding (the bust side of the boom-bust equation) of speculation is concerned.

The notion of Anti-Fragile: the above brings us to the Nassim Taleb notion of “anti-fragile”: just as a parent who overly cocoons a child prepares that offspring poorly to function in the wider world, so policy-makers intent on cushioning the private sector from every shock in the economic cycle are doing the overall system a massive disservice. By preventing the build-up of immunity, or the ability to thrive in crises (i.e., anti-fragility), policymakers sow the seed for a greater crisis down the road (hence the repeated cycle of crises).

Safe in Daddy’s arms since 2008 and now coddled and nurtured by Mommy.  There are supposedly serious commentators out there loudly lauding the idea that Ben Bernanke saved the financial system.  Well, he and now she are doing it again.  But the root elements are the same as what Greenspan did early last decade.  They have simply offloaded risk from speculators to a bond market (in this case Treasuries vs. various commercial credit vehicles in the last cycle).  Either way, the goal is risk ‘ON’ (and it is).

Lay the blame on zero interest-rate policy (ZIRP): following on the above, not only does ZIRP allow the survival of zombie companies (which drags down the returns for everyone) but it most certainly affects investors’ behavior. Firstly, by encouraging banks to play the yield curve and buy long bonds, rather than go out and lend. Secondly, because almost all investors hold part of their assets in equities and part in cash or fixed incomes. And in a world in which fixed income instruments yield close to nothing, the tolerance for pain in other asset classes probably diminishes all the more. 

In other words, get out of savings and into assets.  But when the inevitable corrections come in asset markets there is little income to be found in fixed income.  If Grandma gets chewed up and spit out in the process?  So be it I guess.

Bond Yield Relationships & Gold

With all the ‘taper’ and now, compliments of Janet Yellen’s rambling jawbone, rate hike hysterics, the 30 year ‘long bond’ has held its ground.  It could drop a little here and possibly form a bottoming pattern (right side shoulder), but the big picture view does not yet indicate we are in for a hard phase of rising long term interest rates.


Of course the situation is more complex for gold bugs, because it is the relationship between long and short term bond yields that they should be focused on (instead of Crimea and the whacky ‘China demand drop’ stuff).

Continue reading Bond Yield Relationships & Gold

Continuum in the Shadow of the FOMC Meeting

As the big, hype filled shadow of next week’s FOMC meeting looms over markets, we calmly review the ‘Continuum’ and note that if there is going to be a bond market reversal, the time is now.  I look forward to moving beyond this infantile and cartoonish ‘will they or won’t they taper?’ drama.


The Continuum is at a point where it has reversed every damned time previously.  If it does so again, the trends that have been in place for the duration of the Long Bond’s bottoming process and upturn are likely to reverse as well.  So, will another red arrow be inserted above?

Guest – Bond Yields Say More Downside for Dollar

By Tom McClellan

Chart In Focus
Bond Yields Say More Downside For Dollar

10-year bond yields lead the Dollar Index by 21 months
November 15, 2013

Continue reading Guest – Bond Yields Say More Downside for Dollar

T Bond Yields Break Above Resistance

This chart was shown last week, noting the resistance that a then fledgling bounce would run into before it could be declared a rally.  Today’s ‘jobs’ report put a definitive break above resistance and the 50 day moving averages in play.


Cue Huey, Dooey and Louie in the media this weekend or next week.  ‘Taper’ blah blah blah.  Rising interest rates are not a friend of the Fed since the Fed’s current operation is to try to keep them contained.  It could be argued that the operation needs some bad economic news or worse, something to fall apart out there in the financial system.  Otherwise the Fed would be forced to stand aside or look really silly holding ZIRP and merely tapering their bond purchases in the face of rising interest rates.

Please Ben… Please Janet… just declare that due to the stellar economic performance first seen in ISM and manufacturing in general, and now jobs… that your job is done.  Stand aside and let the natural markets take over.  Pretty please?  Everything’s going great.  Let’s let Grandma and my kids get a little return with their savings accounts at the local bank!  Thank you Dear Monetary Leaders.  Thank you so much.

What is Different About This Cycle in Bond Yields?

Well for one thing, gold has often experienced strength during periods when long-term yields have risen.  The yellow bars on the 2 lower panels of the chart below show that.  Yet on this cycle, gold has gone down as long-term yields have risen.

Continue reading What is Different About This Cycle in Bond Yields?

Measured Targets on Interest Rates Locked & Loaded

From NFTRH 239 back in May…

10 year yield target, NFTRH 239
30 year yield target, NFTRH 239

It appears to be time to not be on the RATES ARE RISING!!! hysteria.  Of course, this time may be different.  But the risk vs. reward on the rising rates view is out the window now.  Here’s the big picture on the 30-year again…

30 year yield, monthly view from NFTRH 253


NFTRH 255 Out Now

Boy this is a macro market newsletter that dug and dug until it came up with a lot of possibilities for various markets going into Q4 and beyond.  It also highlighted something significant going on in T bond yields that I don’t think is being considered by most people.

This as 10-year yields have just about hit the 3% target we established back in May in NFTRH 239.  The 30-year is closing in on its target of 4.2%.  But there is something going on in yield relationships that I really need to think more about and get on top of.  Anyway, even the little promo blurb for this letter is getting too involved.

Got to love the markets; never an easy answer nor a dull moment.  NFTRH 255 out now.