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Do Deteriorating US Demographcs Predict 10%+ On The 10 Year?

Tyler Durden's picture




 

Courtesy of GTAA's latest fixed income update, we wanted to present a curious chart which looks at the correlation between US social demographics (in this case, the ratio of retirees to savers) and the 10 year yield. As the chart demonstrates, the two data series have a strong correlation of 0.91 since 1960, and based on predicted social dynamics, corroborated by various independent budgeting organizations, the demographic ratio is expected to continue growing at the current rate and hit highs last seen in 1981. The obvious question: does this mean that the 10 year, now once again close to all time record low yields, will follow through and revert to 1980 Paul Volcker levels, or will the Fed attempt to offset not only the impact of the business cycle and record systemic leverage, but also take on nature and aging directly?

Source: Emphase Finance

 

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Tue, 06/21/2011 - 10:03 | 1388762 russki standart
russki standart's picture

The ten year will definitely decrease in price, reflecting higher interest rates, if only because of the gargantuan deficits stretching into infinity....

Tue, 06/21/2011 - 09:59 | 1388763 Stuck on Zero
Stuck on Zero's picture

No one will be able to retire soon so the ratio will remain.

Tue, 06/21/2011 - 10:32 | 1388884 hungrydweller
hungrydweller's picture

Exactly.  This is where the current and soon-to-be retirees get thrown under the bus with perptual low interest on their savings based on targeted and capped rates on treasuries through Fed manipulation.  This combined with continuing increases in the prices of food and energy will drive many seniors into a much lower standard of living than they were expecting; maybe even into the back bedroom of their childrens' homes.

Tue, 06/21/2011 - 11:00 | 1388981 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

And ultimately, drive them to their demise so that we have a "demand contraction" on social services and medical care. That's really the goal. But they must do this incrementally lest we revolt.

Tue, 06/21/2011 - 13:09 | 1389412 trav7777
trav7777's picture

do you people think "interest" comes from thin air or something?  It is paid by growth ELSEWHERE.

You act like somehow the banks or Fed can PAY 5% when the economy is generating 3!  It cannot

Tue, 06/21/2011 - 10:03 | 1388766 Johnny Lawrence
Johnny Lawrence's picture

Another bearish post on bonds.  How surprising.  It's like I'm reading a report from UBS, Merrill, or Morgan.

 

Tue, 06/21/2011 - 10:11 | 1388789 equity_momo
equity_momo's picture

Its dumb isnt it Johnny. The US financial system will simply implode before we get readings like this on US Govn debt.  Being short US treasuries is a widow maker and even if or when one is right , who are they going to collect from? No one.  Shorting US govn debt is a really really stupid trade.  Plenty better ways to express the view that deficits do matter.

Tue, 06/21/2011 - 10:23 | 1388847 Dr. No
Dr. No's picture

who are they going to collect from?

I sorry, but if you are short, you already collected.  They money is in your pocket with an obligation to buy the bond back at a later date.  I dont disagree with your thoughts about it being a widow maker, but being short means you already collected the money. 

Tue, 06/21/2011 - 11:00 | 1388980 equity_momo
equity_momo's picture

Sure , but i think the way the 10yr gets to a yield above 5% is through a collapse so sudden it will be difficult to collect the $$$ from a move say , 5 to 10 to >10% in yield. the system is past the point of no return , it cannot simply allow rates to grind higher. it wont happen. the only way we get a yield higher than even 5% on the 10yr is through a spike resulting from collapse. no ones cashing that winning lottery ticket.

yields cannot rise , just as they cannot rise in Japan. they will not rise. the only time you will get POSITIVE real rates of that magnitude is when the system goes super nova.  id rather own gold or real estate with a nice cheap low fixed rate if thats what im betting on.

Tue, 06/21/2011 - 10:41 | 1388896 Johnny Lawrence
Johnny Lawrence's picture

I agree.  Plus, I'm a contrarian and I don't think I've seen such universal disdain for a particular asset class than I see right now with bonds.  That makes me pause.

From a historical perspective, I also look at Japan.  Their T-Bill rates have been at zero for about the past 16-17 years.  And what happened there (real estate bust, overleveraged consumer, massive monetary and fiscal action) is eerily similar to what we're experiencing in the US.

Tue, 06/21/2011 - 10:02 | 1388779 Doode
Doode's picture

There is a just a strong of a correlation between sun in the sky and people going to work. Though I would not bet that if all folks decided to go to work at night the sun would follow :)

Tue, 06/21/2011 - 11:49 | 1389112 dxj
dxj's picture

Perhaps people can choose not to age too.

Tue, 06/21/2011 - 10:03 | 1388782 PaperBear
PaperBear's picture

10% on the 10-year !?

HOLY S**T !!

Tue, 06/21/2011 - 10:06 | 1388785 hedgeless_horseman
hedgeless_horseman's picture

...will the Fed attempt to offset not only the impact of the business cycle and record systemic leverage, but also take on nature and aging directly?

Yes we (will kick the) can!

Tue, 06/21/2011 - 11:06 | 1388994 whatsinaname
whatsinaname's picture

Hilarious.

Tue, 06/21/2011 - 10:07 | 1388791 Boston
Boston's picture

It would be interesting to see this data.....for Japan.

Tue, 06/21/2011 - 10:07 | 1388793 mickeyman
mickeyman's picture

It's all in the assumptions, like the birth-death model used in calculating unemployment. Don't be surprised to see changes in the models to show that curve collapsing towards zero.

Tue, 06/21/2011 - 10:11 | 1388795 kaiserhoff
kaiserhoff's picture

Demographics are the least of it.  Almost everything points to higher long rates. 

Let's arrest Bernanke and find out what a free market looks like.

Tue, 06/21/2011 - 10:11 | 1388809 snowball777
snowball777's picture

Welcome to the graying of America...and the necrotic decline.

Is not the Fed already taking on aging by monetizing Medicare debt for the octogenarian set?

Tue, 06/21/2011 - 10:17 | 1388816 Mr Sceptical
Mr Sceptical's picture

so typical of Zerohedge.. there were 100 odd other charts in that report, that tell otherwise.. i.e. us ty10 to fall to 2% again.. but Zerohedge picks the one chart, that gives an alternate view...

Full report here.. http://www.zerohedge.com/article/global-tactical-asset-allocation-q3-update-fixed-income

Tue, 06/21/2011 - 10:18 | 1388839 Sig Sauer
Sig Sauer's picture

 

skeptical |?skeptik?l| ( Brit. sceptical)adjectivenot easily convinced; having doubts or reservations the public were deeply skeptical about some of the proposals.Philosophy relating to the theory that certain knowledge is impossible.

Tue, 06/21/2011 - 10:39 | 1388861 baby_BLYTHE
baby_BLYTHE's picture

.

Tue, 06/21/2011 - 10:31 | 1388879 gwar5
gwar5's picture

"It is absurd for America to think they can rebuild their eceonomy with millions of fruit pickers" -- Lee Kuan Yew, former president of Singapore, creator of their economic miracle.

For decades our politicians have been throwing out the foreign graduates of our universities, while they pander and pay to encourage and keep the undereducated and unskilled to come here illegally by the millions.

 

Tue, 06/21/2011 - 21:41 | 1390854 Bobbyrib
Bobbyrib's picture

What country do you live in?

Tue, 06/21/2011 - 10:54 | 1388962 r101958
r101958's picture

One way or another, we will pay for our follies.

Tue, 06/21/2011 - 11:18 | 1389032 DogSlime
DogSlime's picture

They'll take on ageing directly, I think.

They will stop people ageing.  The ageing process is easily stopped - either by the use of the nuclear stockpile or by an engineered plague.

This might not be the best decade to be starting a family.  If you have already started a family, enjoy it while you can.

Tue, 06/21/2011 - 12:10 | 1389202 Rastamann
Rastamann's picture

nice chart...too bad it doesn't go far enough and show the spike that happens when a country goes BANKRUPT (which is what the USA is)

 

thanks rightwingers.....for helping to destroy what needed to be destroyed. and you libertarian peabrains?....well...."market forces" will sort the mess out. hahaha.

Tue, 06/21/2011 - 12:32 | 1389286 MacGruber
MacGruber's picture

Meh, I don't buy many of these models anymore. They don't take into account the hanky panky of the modern market - mostly due to the Fed.

Tue, 06/21/2011 - 12:49 | 1389339 Laddie
Laddie's picture

It would be prudent to consider demographics in projecting the future of America, economy-wise and more.

I watched US CHAMBER OF COMMERCE's Governor's Conference on C-Span yesterday.

One of the featured speakers was JOEL KOTKIN whose expertise, it was claimed, is Urban Futures.

He was almost orgasmic in showing the stats on demographic change, with Whites going down, down, down.

To KOTKIN this is GOOD NEWS, says America is the ONLY superpower GROWING in population, mainly due to immigration, and even better it will be the ONLY Multi-Racial SUPER POWER in the world and that means WUNDERBAR.

How US has all this arable land for agriculture and potable water and unlimited fuel, this is the kind of CRAP that these Evil ones, shove at the Public.

Reality will be much, much different.

There are volumes that demonstrate what is coming but even Pat Buchanan's latest should give a HINT, at least:

06/20/11 - The Dumbing-Down of America—History Texts Comically PC , While Racial Gap Remains Intractable

Tue, 06/21/2011 - 14:21 | 1389615 SmittyinLA
SmittyinLA's picture

I would say the ratio of retirees to savers is far less relevant than the ratio of tax payers to tax parasites, most of the elderly retirees I know are quite well off  and the state is still turning a profit on them, however they're far more than offset by hourdes of illiterate, obese, diabetic young breeding tax parasites with no skills and a far higher birthrate and tax-parasite lifespan.

Our long term ethnic "demographics" are far worse than the relatively short term age related demographics which always drop with death. 

There will always be bumps & bubbles in age demographics, what we're facing is a fundamental ethnic change from highly skilled, educated, frugal, self supporting ethnic "American" population to a far less skilled, less educated, even less healthy and far more obese and diabetic NAM (non-asian minority) Socialist voting population, this is the demographic trend which will effect future spending and tax revenues more than the retiree dujour trend.

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