Yield Curve Hoping for 10y yield to retreat relative to 30y yield, which would usher more strength and stability. Seems contingent on a sub 1.5 10y yield. The falling wedge gives me a lot of hope despite a false breakout near the end of January.
US30Y trade ideas
Is inflation coming? In short, we don't think so.
In the chart above, you're seeing the 10y30y spread and the 10y yield.
The 10s30s is a barometer of the inflation risk premium.
And quite frankly, the market isn't buying that inflation will be sustained.
Yes, the 10y yield is indicating perhaps to many that there is some kind of inflation risk, but from the Macrodesiac view, all that is being exhibited here are base effects.
Take a look at the US 10 year yield (the risk free rate of return) over the last 20 years, and come to a conclusion as to whether we are in an abnormal market or not.
The upper bound is likely capped at 2-2.5% at the max.
This would not inspire the extent of inflation that many are warning about, and the Fed is consistent with this view as well.
An excerpt taken from the Macrodesiac note yesterday...
'Back in late August last year, Powell stepped up to the podium at Jackson Hole (well, it was online), where he outlined a different policy path of Average Inflation Targeting.
Here's where an understanding of that above paper comes into play.
" f inflation runs below 2 percent following economic downturns but never moves above 2 percent even when the economy is strong, then, over time, inflation will average less than 2 percent.
Households and businesses will come to expect this result, meaning that inflation expectations would tend to move below our inflation goal and pull realized inflation down.
To prevent this outcome and the adverse dynamics that could ensue, our new statement indicates that we will seek to achieve inflation that averages 2 percent over time.
Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time."
It's all about signalling.
The central bank can't automatically push prices up.
They can only provide behavioural signals to the market to either consume or save.
That is it.
The problem comes when there are broader issues at hand that might make the actual mechanism of achieving policy goals, defunct.
The main one that I have been focusing on of late is of course demographics, and the labour market, which are intertwined.'
Now, let's talk about those demographic issues.
Below is the labour force participation rate for the US.
What I would like to know is how inflation is to be sustained when we have 2% of the available workforce that have taken themselves out of even looking for work on a year on year basis?
You can provide all the stimulus checks you like, but all that is doing is providing a push back to a prior baseline - if fewer people have incomes, there is less consumption, so one of the primary drivers of inflation is dampened.
And with regards to the recent NFP figure of +376,000 new jobs being created in a month, we would have to see that figure be printed month on month until April 2023.
Not so inspiring, is it?
Your eyes may now switch to the savings rate as a critique of what I am suggesting.
The problem here is that this is a ridiculously skewed measure too.
For retirees and the highest income earners, they have captured most of this increase in savings.
But for the poorer income quartiles, they have experienced a broader deterioration in their household savings rate.
When you look at data on consumption broken down by income, you find that the highest marginal propensity to consume segment is the richest households with low liquid savings and high illiquid savings...
But right now, they have both.
The next highest (and is generally consistent through time) is the lowest and middle households.
However, they do not have spare cash to spend!
The pent up demand argument is failing, and I'd argue is more a bubble in financial media and commentators where they are on higher salaries, their family members are too and they (me too) have largely been shielded from the economic fallout of the past year.
Now, I've also got into debates around something a little more concerning too, and that is to do with TIPS (Treasury Inflation-Protected Securities).
You might not have heard of this, but it's effectively a way to protect yourself against the rise of inflation.
I'll take another excerpt from the note written yesterday...
'There's a big problem with this measure.
The Fed has been buying Treasury Inflation-Protected Securities!
The Fed’s buying of TIPS could drive down TIPS yields and drive up the breakeven measure of inflation expectations.
So what we are perhaps seeing here is the market using a key measure of inflation expectations to gauge the macro picture moving forwards, without actually realising that it's distorted.
'But breakevens are high!' is probably the reply that you might get back if you mention a number of factors that contend with the longer term inflation view.
My question then would be to ask whether this would have some effect across the nominal yield curve, causing yields to spike higher and with greater speed, than they should?
This paper might prove key to answering what's going on here.
"Such expectations proxy a situation in which the public does not understand the full structure of the economy and, hence, cannot anticipate the implications of policymakers’ intention to make up for past deviations of inflation from its objective.
By varying the number of economic agents (and, hence, components or blocks) in the FRB/US model who use VAR-based rather than model-consistent expectations, we can adjust the extent to which the public understands policymakers’ commitment to a makeup strategy and the degree to which aggregate economic variables react to news about the future."
The paper concludes with...
Makeup strategies work best when the public understands, believes, and reacts to policymakers’ commitment to offset misses in inflation from the 2 percent objective in the future.'
What we are currently seeing in the market, from my point of view, is merely the Fed signalling that they want to make up for missed inflation goals over the past year and probably before as well.
Now they have the fiscal support, it sounds to them like it might be the right time to do so.
This is most notably seen through Powell's speech at Jackson Hole back in August where he introduced the Fed's new mandate of 'Average Inflation Targeting'.
What I would wonder, specifically to do with TIPS, is whether traders know that the Fed has distorted the TIPS market, since 5y5y inflation swaps have followed it, and have almost gone in lockstep with the Fed's holdings of TIPS.
This would be cause for concern, and if it is understood, alongside the waning macroeconomic indicators, then this would provide a strong basis for the current differentials in rates pricing, and for the inflation narrative to subside.
Welcome normality.
Bonds and the troubles of economically advanced societiesBefore I begin, bonds are warning of something monstrous, they are signaling inflation and freezes everywhere. With that said, I'm glad to see some buying has happened over the last week or so. Look, liquidity is dead, the FED is our new liquidity. Inter and intra bank lending is also dead. so who is buying bonds? I'm not holding bonds, are you? I want to know, I think the FED is the majority buyer and seller of last resort, including bonds. Now this TGA account 1.1T drain is something interesting the bond market reacted to. There has been a lot of speculation as to what moves the market. This is where my re evaluation was needed. I dont think that FED brrrrrrrrr printer matters AT ALL. I think this market is so in need of money after a full year of rona, that EVERYONE is hoarding cash. This means brrrrrr does not matter because it is leaving the market too quickly, but stimulus.... Stimulus just moved the market today after 2 generally bad weeks on the market (for bulls). Some spending happens before people save their stimmy. THIS IS BAD, and I think the bonds know it BIG TIME. To hedge i would recommend you understand the asset pie and be diversely invested. I do think silver will be the poor mans saving grace, just like every time before in history.
US30Y Yield @ 0.06%? Be ready to be the long the long bond.The US30Y yield has only gone in one direction for the last 30+ years, down.
Using the TradingView monthly price history, the US30Y yield peaked in Oct 1987 at 10.234%.
Every successive period has seen lower highs on the US30Y yield. The most recent peak in Oct 2018 was at 3.466%.
Using Fibonacci analysis, the successively lower highs from the Oct'87 peak have all respected key Fibonacci levels on the way down.
The falling trend line from Oct'87 to Oct'18 would imply that the next high will be at or below the next key 0.236 Fibonacci level.
You will notice on my chart that I have placed the bottom of the Fibonacci sequence analysis at a level that has never been reached before.
I chose this 0.059% level based on the 0.618 retracement of the Oct'18 peak (3.466%) to the Mar'20 low (0.812%) is 2.452%. This would align the long-term 0.236 level with the Golden Ratio at 0.618 for the most recent retracement from the Oct'18 peak (3.466%) to the Mar'20 low (0.812%).
You could call this 'fun with Fibonacci numbers' but when I look at the 30+ year trend, it is hard to foresee a scenario where we don't continue to see lower highs on the US30Y yield, and this long-term trend remaining in place.
I am happy to hear any feedback.
COLLAPSE in long bond YIELD and MAJOR liquidation in stocks!!!The charts are clearly telling you we are heading for major deflationary event despite what the media keeps pumping and yelling inflation is coming. They don't want you to hold cash when the biggest opportunity comes. They want you to stay broke through the opportunity. DXY and bonds are going to do very well. So I will be converting them back to stocks when stocks go into undervalue territory.
The US bond market is selling off and rates are going upThis pattern has strength and indicates that higher rates will be here to stay for quite a while. This could cause issues in other markets and the dollar strength.
Yield Curve and Precious MetalsAdditional comparison with the MOVE index, a sister to the VIX which measures volatility in bonds (as opposed to the S&P500). The fed may be forced to control the yield curve, a move that many see as inevitable and generally, positively correlated with the precious metals' performance. I'll add to this thread as I learn more, interview with danielle dimartino booth on palisades is inspiring and eye-opening!
30 YR BONDS ANALYSYou can see bonds are in overbought. But if it wants to test main trend(blue line) which is coming from 1995 we can see more bear trends in assets. (Except bitcoin =))
30 yr yieldYields increasing in 5, 10, 20, and 30 yr. 30 yr yield is already above pre-COVID levels.
US30YPrice is at important resistance level if it breaks it short USD for a long time.
Note that price didn't break of a long term downtrend back in late 2018 when economic conditions were much better than they are currently.
But maybe this time is a charm.
30 Year Rates climb higherDespite Stocks heading higher, 30 Year Yields are also climbing about to hit 2% - a level they were last at in Feb 2020.
US CPI prints this week will be very interesting to see if the momentum continues
TLT BULL CASE THESISUS30Y rates forms rising wedges throughout its history before falling.
Short Term rates always dictate the Long Term rates
US Government Bonds 30YR Yeld (US30Y)Record treasury auctions and yields falling again, which brings us back to the legendary October of 2018. But bond yields have been rising for the past several months and perhaps investors should pay attention, especially as we grapple with questions about inflation and the broader economy.So is inflation and economic growth back in play? Powell said an interest rate hike "is not in the short term," pointing out that there may be upward pressure on prices in the short term, but a one-off hike does not mean "persistent inflation."
View on U.S 30 year Treasury BondPrice is in a decent uptrend.
Waiting for a break out to long this product.
SL, EP, TP as per chart
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Deflationary Or Hyper Inflation Seems as if stocks and bonds are decoupled , what do you guys think are we in a deflationary with qe or hyper inflation on the way
US Government Bond 30 Year Yield Price ActionUS30 yr yield price action
W bullish patterns is being completed , if the price can cross the red line and stay above it for a enough time , then this pattern will work
Properly and it can reach to the green line , which this is not a good news for stocks , because usually the correlation between the stocks and the bond yield is opposite .
Possible Correction ?Due to Covid 19 the US30Y has drop. When things gets back to normal, should we expect an increase ?
US Government Bonds 30YR Yeld (US30Y)Bond MOVE index says something big is brewing and it’s usually trouble. The index jumped from 40 points at the end of September to the current 60.
The MOVE index is therefore the equivalent of the VIX bond market. The MOVE index measures the volatility on options traded on US Treasury Bonds, it represents a risk barometer to understand how the sentiment of operators on the US bond market tends to move. The MOVE Index tends to move between 80 and 120, with 80 representing a situation of extreme complacency and 120 representing a sentiment of extreme fear. Since the implied volatility is the cost of insurance, the MOVE measures the willingness of investors to purchase risk insurance. The lower this index, the lower the demand for risk protection.
Rates breaking out or nah?30 yr is knocking on the door of a break out of this upper range
Been rejected here many times
Maybe a shot long TLT if this level holds
