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Bond Bubble, Or Rational Expectations? Visualizing 220 Years Of Treasury Yields

Tyler Durden's picture


Near multi-generational low bond yields, driven at least in part (and some think in full) by the undeniably large asset purchase program (Quantitative Easing (QE)) that the US Federal Reserve has been implementing in one form or another since the 2008 Global Financial Crisis (GFC), have pushed the question of whether or not the bond market is a bubble to the front of many people's minds. However, while the chart below of over 220 years of 10-year treasury yields shows the extraordinarily low bonds yields, they have resulted from many fundamental and rational drivers (expectations of weak economic growth and safe haven flows amid the European sovereign debt crisis) in addition to Fed purchases. So while bond prices look expensive, there is nothing particularly bubbly about the bond market today.


(click image for huge version)


Source: Goldman Sachs


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Tue, 04/23/2013 - 22:13 | 3491290 markmotive
markmotive's picture

Unless you think 1) real growth will return or 2) the bond vigilantes will skip Japan and visit America we could see low rates until 2027, if we tracked Japan.

Tue, 04/23/2013 - 22:19 | 3491305 zorba THE GREEK
zorba THE GREEK's picture

After reviewing the chart, it seems obvious that things got out of control in the 70's

when Nixon took us off the gold standard. 

Tue, 04/23/2013 - 22:22 | 3491318 willwork4food
willwork4food's picture

In the EARLY 70's. Then we got Fleetwood Mac, Blue Oyster Cult, Pink Floyd and things took off again.

That is until everyone ignored the best music of ages...then the shit hit the fan.

Gold, smold, who needs pms when you can rock to Van Halen?

Tue, 04/23/2013 - 22:28 | 3491328 Abraxas
Abraxas's picture

So, I guess we are financially wiser because no sane person could listen to Justin Bieber or Lady Gaga.

Tue, 04/23/2013 - 22:32 | 3491340 kliguy38
kliguy38's picture

Don't worry about it......Fema camps have re education prepared for gold AND classic rock lovers......when you come out you'll be given a Justin Beiber tatoo and free Prozac

Tue, 04/23/2013 - 22:37 | 3491353 Abraxas
Abraxas's picture

Deep Purple with pot replaced with Justin with Prozac. That's it, I can't take it any longer. Where's that rope?

Tue, 04/23/2013 - 22:44 | 3491372 willwork4food
willwork4food's picture

It burned up in the gambling house...

Wed, 04/24/2013 - 10:28 | 3492682 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture

Pretty sure the reptilian sarc of McMolotov, the Hedgeless horseman et, al finally saturated one of the Durdens.  I'm wondering if I have a bottle of wine and two vikodin this chart will make sense stacking with other economic factors.

Tue, 04/23/2013 - 22:39 | 3491359 algol_dog
algol_dog's picture

Think you forgot to include "Sly and the Family Stone" in there ....

Wed, 04/24/2013 - 08:29 | 3492177 Aaron Burr
Aaron Burr's picture

I want to, want to, want to take you HIGHERRRRR!

Tue, 04/23/2013 - 23:36 | 3491506 DeadFred
DeadFred's picture

With all due respect Van Halen is undanceable. And with additional due respect Lady Gaga, despite being the nadir of humanity, has extremely versatile dance music. Bad Romance is a terrible song lyrics-wise but a great cha cha.

Wed, 04/24/2013 - 10:52 | 3492795 willwork4food
willwork4food's picture

Dance the night away!! See me dance when I win the Mega one of these days..

Actually the only one he made I really like!

Wed, 04/24/2013 - 12:14 | 3493191 Jack Napier
Jack Napier's picture

Any funk from the 70's would be preferable to today's music as far as dancing goes. The 80's had plenty of good stuff too. No need to resort to tools who don't write their own music.

Tue, 04/23/2013 - 23:38 | 3491530 Its Only Rock N Roll
Its Only Rock N Roll's picture

The one band that has endured the full rate cycle?  Going on tour next month.....ladies and gentleman ....The Rolling Stones



Wed, 04/24/2013 - 03:04 | 3491829 enloe creek
enloe creek's picture

the who also

Wed, 04/24/2013 - 01:38 | 3491755 Pareto
Pareto's picture

Rush has been around for over 40 years.

Wed, 04/24/2013 - 10:56 | 3492807 RebelDevil
RebelDevil's picture

At least we have Radiohead, Muse, and Coldplay in the current era. Sucks for the sheeple who buy shit music.

Tue, 04/23/2013 - 22:26 | 3491326 andrewp111
andrewp111's picture

I disagree. The runup in interest rates from 1949 to 1981 is kind of symmetric with the decline from 1981 to present. Each side is the same amount of time - 32 years! This shows the Nixon end of the gold standard to be a consequence of the rise in intererst rates, not the cause.

Wed, 04/24/2013 - 10:01 | 3492544 Stuck on Zero
Stuck on Zero's picture

A chart to go along with this one would be real yield after true core inflation.


Wed, 04/24/2013 - 10:22 | 3492652 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture

Andrew: good single-leg takedown of post hoc ergo propter hoc reasoning.

Wed, 04/24/2013 - 07:54 | 3492125 Nostradamus
Nostradamus's picture

You don't think this could be a game changer in the way the world views Japan versus the U.S.?

Wed, 04/24/2013 - 09:28 | 3492400 Dingleberry
Dingleberry's picture

"Bond vigilante" does not apply to major economies like US, Japan, etc. That was all a myth.

"PM vigilante" does.  Superimpose a gold/silver chart over the bond one. You'll see. 

That's why PM prices were and are suppressed, primarily with naked shorting but other ways too. Ask the Hunt brothers and read what Volker did. 

We are supposed to believe that we have a recovering economy and bond rates are negative, even with cooked inflation numbers?


Wed, 04/24/2013 - 12:06 | 3493177 JeffB
JeffB's picture

1. I don't think real growth will return with the government induced misallocation of resources.

2. I think the bond vigilantes have already visited America to a large extent, but that has been largely offset by monetizing of the debt by the Fed and purchases by a number of other countries, some of whom are insolvent themselves... Japan buying hundreds of billions of our debt when their own debt is over 200% of GDP?

3. Our own "official" public debt is dwarfed by the "unfunded liabilities" of Social Security, Medicare & the Medicare Drug Program.

The outcome of the tightrope balancing act pitting the inflationary effects of "money printing" vs the deflationary impact of bad debts being written off (or not) is what will determine where the interest rates on the Treasuries will end up. So far Japan has erred on the side of deflation, but now seems determined to push for higher inflation. Will we do the same? If inflation takes off it may be very hard to stem the tide of what could be an avalanche.

In any event, holding long bonds seems a very risky move. Investors in European bonds of insolvent countries are finding the risk was far higher than the minimal interest rates would indicate. Given that if we count the unfunded liablities in the U.S. that the total liabilities already exceed $1.2 million per taxpayer and rising rapidly, I see no reason to think that long term U.S. bonds with a few percentage points of interest is a reasonable purchase, even if there is a possiblity that a continuing or worsening horrible economy and central banks purchasing them hand over fist in a last ditch struggle to keep from drowning, might keep interest rates abnormally low, or even push them lower, for a while longer.

Fri, 04/26/2013 - 03:35 | 3501431 WhiteNight123129
WhiteNight123129's picture

Common mistake, stagflation has nothing to do with real growth, actually you can have stagflation with negative real growth. Check Argentina. But the Gov managed to delveraged since 2002 (inflate away).

Tue, 04/23/2013 - 22:15 | 3491294 howenlink
howenlink's picture

Gold, James Gold.

Tue, 04/23/2013 - 22:15 | 3491297 markmotive
markmotive's picture

Whoever wrote the sources on the graph needs to check his source names again.

Wed, 04/24/2013 - 06:01 | 3491985 Urban Redneck
Urban Redneck's picture

Whoever wrote that BS for GS- that bonds aren't in a bubble need to check with an actual bond trader on the impact to bond prices of absolute interest rate movements towards mean reversion relative to current pricing.


Sort of like those math geniuses at Blackrock who forgot to do something similar when modeling securities prices and repayment risk for sub-prime mortgage based derivatives a decade ago (it's just a bit more complex than Black/Scholes in the real world), not that a fink like Fink would be able to grasp such a concept though...

Tue, 04/23/2013 - 22:16 | 3491299 topspinslicer
topspinslicer's picture

When you are high on the big brother crack pipe everything looks like a bubble at the same time that it looks like it aint. That big gov crack is poison funny like that

Tue, 04/23/2013 - 22:19 | 3491304 fonzannoon
fonzannoon's picture

How about overlaying that chart with the national debt?

Is this really a ZH article? Am I losing my mind. Now ZH has the S&P reality above 1400 and treasuries are fairly valued at these levels?


Tue, 04/23/2013 - 22:43 | 3491364 kito
kito's picture

remember fonz, the completely manipulated bond market is a bargain compared to the completely manipulated stock market...oh wait...i thought it was the other way around........................shit im so confused...............

Tue, 04/23/2013 - 22:48 | 3491367 fonzannoon
fonzannoon's picture

This article knocked me off balance.


Tue, 04/23/2013 - 22:59 | 3491412 kito
kito's picture

im thinking its the beer that took you down..................

Tue, 04/23/2013 - 23:01 | 3491422 fonzannoon
fonzannoon's picture

Nah it's wine. I just hpe ZH did not get Egan Jonesed.

Tue, 04/23/2013 - 23:05 | 3491434 kito
kito's picture

merlot, malbec, cab???????????

Tue, 04/23/2013 - 23:10 | 3491439 fonzannoon
fonzannoon's picture

Apparently it's a shiraz type Cab/bath saltz.

I am going to stick with funny from here. My mind is blown and I like this place, I hope It's just me,

(fumbling around, desperately looking for red pill)


Tue, 04/23/2013 - 22:44 | 3491373 disabledvet
disabledvet's picture

definitely counter-intuitive "in extremis." however i think this is the MOST critical point...namely "it's not the QE but what you do with it" that matters. if QE was used to do anything other than "increase deficit spending to beyond imagination" then i don't think we'd have the low rates we do. in other words all the debt creation by the Government is KILLING economic growth...thus leading to a DEFLATION. the Fed could end the program of course...but obviously "the Government want's to know what .25% interest on the 30 year feels like first." needless to say "this is forcing good behavior on all the various States"...and every other Government in the world the simple question of "what does America make?" becomes "what doesn't America make...and a price WAY lower than you..." i don't know if i like this "QE thing" actually...but for the exact opposite reason as i presupposed (inflationary, dollar annihilating, an immediacy to State bankruptcy) but for a reason i could never have imagined only a year ago...namely "too much of a good thing" (zero percent financing of Government) "leads to only the creation of a bad thing" (unpayable debt, replacement of all benefit checks with an interest rate expenditure, capital "depreciation" on steroids, the loss of final demand, Absolute Power now concentrated in the few Banks that have survived The Collapse...a suddenly emergent and diffuse media reality and all that entails, public works projects "beyond imagination" as well) it's really not a reality i ever envisioned...and towards which i still find myself trying to "adjust" (mentally) to. this is the best i can do for now:

Tue, 04/23/2013 - 22:58 | 3491400 kito
kito's picture

@dv---do the va hospitals treat you well????????????????????

Tue, 04/23/2013 - 23:08 | 3491442 HardAssets
HardAssets's picture

If interest rates go up, it will be obvious that the government (and more importantly to the NWO) the big TBTF banks are bust.

Interest rates often rise in an improving economy.

So, it is against the interests of govt/big banks (the fascist partnership) for the real economy to improve in the U.S.

They will continue to print money and try to expand their Nazi police state to keep a lid on the unrest that they are causing the citizenry - who they consider only to be 'milk cows'.

Wed, 04/24/2013 - 00:00 | 3491583 disabledvet
disabledvet's picture

is this true? "the data speaks to something otherwise" if not completely opposite. i do understand "trying to understand the idea of trillion dollar deficits making money more dear" is a rather "inverse of perceived reality" thing. but we shouldn't confuse the idea of "that cannot possibly be true" with the fact that it is...nor even more importantly "in trying to find an explanation" we simply aren't coming to terms with "the way forward here." wait 'till we get to the "keeping up with the Jones'" scenario.

Tue, 04/23/2013 - 22:53 | 3491398 Jim in MN
Jim in MN's picture

Whichever Tyler put this up like this is obviously wasted.  So, you know, sometimes you hang a strip of wallpaper upside down.  Or say throw a Nazi salute in a kind of fascist brain fart.  Ooops. 

Tue, 04/23/2013 - 22:18 | 3491306 Big Ben
Big Ben's picture

So let me get this straight. Interest rates are lower than at any time during the last 220 years, but there is no bubble?

Tue, 04/23/2013 - 22:21 | 3491313 andrewp111
andrewp111's picture

Maybe Federal Government debt isn't a bubble, since the Government can always print the dollars needed to pay the debt back. But junk bonds of companies that are on the edge of default going at under 6% is a bubble.

Tue, 04/23/2013 - 22:22 | 3491315 tmosley
tmosley's picture

>Goldman Sachs


Tue, 04/23/2013 - 22:21 | 3491317 fonzannoon
fonzannoon's picture

Hey ZH if bonds are safe here...why should I be buying gold????? At least bonds would pay me interest!


Tue, 04/23/2013 - 22:27 | 3491330 HulkHogan
HulkHogan's picture

You should be buying bonds. Why not, 1% is better than getting wiped out holding shiny chunks of metal.


Tue, 04/23/2013 - 22:29 | 3491332 fonzannoon
fonzannoon's picture

I am guessing you pawned your chanpionship belt?

Tue, 04/23/2013 - 22:45 | 3491374 kito
kito's picture

fonz are you typing from your smartphone or are you drunk?????

Tue, 04/23/2013 - 22:54 | 3491380 fonzannoon
fonzannoon's picture

a little of both.

 You don't hear me yelling about comma's so let me spell like the putz I am. What is going on here tonight? Bonds are not in a bubble? Is it me or is this an about face?

(I personally thought the belt comment was funny despite the spelling)

Tue, 04/23/2013 - 22:53 | 3491395 kito
kito's picture

dont worry about bonds fonz........the rest of the world is focused on will and jayden smith---:

Wed, 04/24/2013 - 06:07 | 3491994 Go Tribe
Go Tribe's picture

What, there's a new Thor movie coming out??? How'd I miss that.

Tue, 04/23/2013 - 22:59 | 3491416 HulkHogan
HulkHogan's picture

Yeah, but I don't like to talk about it.

Tue, 04/23/2013 - 23:03 | 3491424 fonzannoon
fonzannoon's picture

Thank god for funny Hulk. It's all we got.

Tue, 04/23/2013 - 22:33 | 3491337 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

I think the point is when the shit house blows up anyone who can't get out of paper might be best to be positioned in Treasuries right now. T-Bills are money if they go well we are in Mad Max territory and everyone has bigger problems. Everyone can say what they want but the guns will be brought out to protect the t-bills at all costs, it is a matter of self preservation. It maybe the only paper asset the FED and the banks can't confiscate from you either. Preserving capitol when the bloodbath gets going is probably the best strategy at this point. Not everyone has the luxury of buying physical.

I would like to think of this article as being a public service announcement for the new people just tuning in from the matrix who can't liquidate their savings aka investments like 401ks into physical.

Tue, 04/23/2013 - 22:35 | 3491345 fonzannoon
fonzannoon's picture

stop rationalizing.

Wed, 04/24/2013 - 03:21 | 3491844 cynicalskeptic
cynicalskeptic's picture

Want to buy some gold backed Tsarist Bonds?    AAA government securities issued by Russia in 1917, one of the longest lasting dynasties in Europe at the time.  And backed by GOLD to boot.  

What could have gone wrong?


You're assuming that there will be continuity.  If there is, your holdings will be worth a fraction of their current buying power.  That's the plan - inflation to devalue the debt.  Of course they could simply default as well.  'Take the money', loot the Treasury - what's left- and run.  I always wondered about the Bush family compound in Paraguay - the old conservative party is back in power there again so maybe that Plan B is back in effect.


Wed, 04/24/2013 - 10:16 | 3492615 viahj
viahj's picture

Exactly, the King is old and senile and the Jester is fornicating with the Queen behind his back.  King Dollar may still be the "King" but no one is standing behind him, his armies are scattered around the world and all are scrambling to partition his "empire" for when he dies. 

Tue, 04/23/2013 - 22:29 | 3491335 CURWAR2012
CURWAR2012's picture

"So while bond prices look expensive, there is nothing particularly bubbly about the bond market today." Where the FUCK is the "sarc"!!!

Tue, 04/23/2013 - 22:33 | 3491341 fonzannoon
fonzannoon's picture

Dude no fuckin shit....and people on here are entertaining this? Is this a ZH stupid test? Is this article on here to see how many people will blindly follow anything said on here?

Tue, 04/23/2013 - 22:39 | 3491355 CURWAR2012
CURWAR2012's picture

Now I am worried that up is not down but rather up is up and I am upside down? WFT is this "market" data and macro data telling us. Fucking twilight zone dude

Tue, 04/23/2013 - 22:42 | 3491358 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Make a solid case why not. It is fight club you know. Besides we saw how the algos reacted today to fake news of blowing up the oreo. You saw where the big boys went running in the paper markets. I think that is telling enough. I would also being willing the bet the algos are set to do pretty much the same for any truely shtf scenario like that.

Tue, 04/23/2013 - 22:43 | 3491366 fonzannoon
fonzannoon's picture

"I would like to think of this article as being a public service announcement for the new people just tuning in from the matrix who can't liquidate their savings aka investments like 401ks into physical."

Whatever blows your hair back.

Tue, 04/23/2013 - 23:51 | 3491560 disabledvet
disabledvet's picture

it's a public service announcement all right. "all public services will now be rendered to a Bank." forget the Matrix...this is Tron now. time for a little "game theory" and one VERY simple psychological truth: "if i tell you speak to me of your gold" willyou become inattentive to "the man in the gorilla suit" passing in front of your very eyes as such a obvious reality does not comport to your "equlibria" or "notion of perceived reality"? and we haven't even touched about CONSCIOUSNESS yet either...yet consistently "50% don't see the man in the gorilla suit" and FAR fewer having seen him "try and gauge his significance." (probably less than one percent.) instead we are all conditioned to "perceive" a reality "that is real" even though all that we see is in fact "imagined" and therefore "must be realized" in some way shape or form. it is interesting to me because in the age of Distributed Media (the Internet/i phone/wiki matrix) we can in many ways be far more easily fooled by "what we perceive" even though the usual "propaganda" (MSM creations) seems completely obvious to us all now. in other words "without an understanding of the possibility of alternate realities" we will probably be incapable of understanding "the current one." (sensational bias, the "blinders complex".) hence "game theory" (both mathematically but also in the sense of "fun" or "play") alternate forms of "real reality" in order to form a basis "for the actual thing." (my ability to perceive various realities does in fact get me close the actual...if not "in" or "observant of" the actual thing.) obviously this is not said to lessen the importance of "being observant." this "reality" can never be too overstated. but in trying to understand the physiological limits (which are many) the importance of say...tool making...can be easily understood...especially if the "math" or "physics" behind the tool is not understood at all. for example "are hand written trade orders superior to computer generated activity in every way"? i think a good argument that hand written notes are superior can easily be made since in theory they can include the ability of human JUDGEMENT to intercede whereas the machine "just takes the information at face value." (to market moving twitter tweets of today for example.)

Tue, 04/23/2013 - 22:47 | 3491381 gjp
gjp's picture

Point is it is all a bubble, one great dollar paper conflagration coming. Government debt will either be inflated away or defaulted on. Paper markets generally may lose all value when confidence in fiat currency breaks, as it eventually must.

Tue, 04/23/2013 - 22:57 | 3491407 CURWAR2012
CURWAR2012's picture

yes, THEORETICALLY that is true. Question is, can we live long enough to see it or does the plunge protection team/cental bankers have the Japanese "suicidal" strength to keep going?

Tue, 04/23/2013 - 23:04 | 3491433 gjp
gjp's picture

My bet is the suicide is 'successful' in 5 years or less, probably on the earlier side of that. It is more than a theoretical consideration

Tue, 04/23/2013 - 22:59 | 3491410 edb5s
edb5s's picture

I am presuming that the text and the chart are from Goldman. That makes more sense than the alternative.

Wed, 04/24/2013 - 11:02 | 3492830 RebelDevil
RebelDevil's picture

There's a lot of stupid people man. So it helps. XD

Tue, 04/23/2013 - 23:19 | 3491469 Dr. Engali
Dr. Engali's picture

We know that when Goldman slacks says buy we sell right?

Tue, 04/23/2013 - 23:22 | 3491478 fonzannoon
fonzannoon's picture

It's one thing to show the chart Doc, it's another thing to endorse it in bold. Unless the bold is the sarc.

fuck. the bold is the sarc isn't it? Fuck me.

Tue, 04/23/2013 - 23:37 | 3491518 Dr. Engali
Dr. Engali's picture

Fonz we have been around here long enough to know what the Tylers think about treasuries. They are just highlighting what the squid has to say and letting us draw our own conclusions. Bottom line is if the squid says buy you run

Tue, 04/23/2013 - 23:40 | 3491531 fonzannoon
fonzannoon's picture

Fair enough. I think you will like my response to you on the Japanese thread. Tell me that was not spot on.

Wed, 04/24/2013 - 06:20 | 3492001 Urban Redneck
Urban Redneck's picture

Where to?

The FRB & Treasury have an cool scam going with simultaneous appeals to both FEAR and GREED.

If you are a fearful big business you can't be "deposit" cash for fear that you will be bailed in

If you are greedy bankster you can move out the yield curve and front run the FED and collect pennies in front of the steamroller

And if you're a Bernankasaurus it's best not breathe on the house of cards

Tue, 04/23/2013 - 22:47 | 3491378 Clowns on Acid
Clowns on Acid's picture

Woulda been real nice if they had included inflation rate as well. Get a picture of real yields.

Why do I have to think of everything ?

Tue, 04/23/2013 - 22:51 | 3491390 venturen
venturen's picture

When will the EKG go Flat Line?

Tue, 04/23/2013 - 22:51 | 3491391 Jim in MN
Jim in MN's picture

Sorry, FAIL. 

Raping savers and forcing risky malinvestment at rates lower than the WWII apocalypse isn't 'normal' and using Japan's insane level of Yakuza corruption as the excuse is pathetic.

How about the 220 year average is 'normal' and we have a proper conversation? 

5% real interest rates seems about right to me.  So maybe 7% give or take on a T-Bill.

Anything less is subsidizing current consumption at the expense of investment.  Which, Virginia, is how you KILL capitalism.

Also note the source on the chart:  Vampire Squid, Ink.

Tue, 04/23/2013 - 23:21 | 3491481 FreeMktFisherMN
FreeMktFisherMN's picture

Low rates are only warranted when there are plentiful savings (foregone consumption). Considering reports I've read about a high percentage of Americans not even having $2k of net worth (assets - liabilities), tons of people spending all they have and then some, and the reality that savings rates remain abysmally low (let alone the tragedy that most of those saving that have saved/are saving in terms of ever-depreciating FRNs instead of sound money), these rates are absurd.

Scarce saving should drive up interest rates. Bernanke and co. are trying to replace legitimate savings/capital/purchasing power (foregone consumption) with 'paper' capital that leads to unwarranted economic activity based on perceived abundance of savings when really there is an extreme dearth. The malinvestment is not due to a lack of demand; demand is practically infinite. What is needed is supply/purchasing power. 'Demanders' have to provide something of value, too, to the suppliers. I believe Say's Law states this. If all 'demanders' can provide are freshly printed Benjamins, ultimately it will be exposed that there is limited actual capital/savings, and then people look to liquidate to get back to dry powder as they see that the housingexpansion or whatver projects were not justified as supply was deficient and priorities are out of whack due to all the malinvestment (not enough resources going to productive activity but rather FIRE sectors). 

Tue, 04/23/2013 - 22:59 | 3491408 random shots
random shots's picture

Zero Hedge must have been hacked by the same AP Twitter hackers?

Zero Hedge finally finally throwing in the towel? 

Tue, 04/23/2013 - 23:14 | 3491454 1C3-N1N3
1C3-N1N3's picture

Whoever it was certainly did a good job of mimicking Run-on Sentence Tyler, who, despite the endless chaining of subordinate clauses (and use of parentheses), remains one of the more incisive authors on this site, as evidenced by my cheering "Fuck Yeah!" once every 15 seconds, as opposed to once every 3 seconds otherwise, being a more normal pace.

Tue, 04/23/2013 - 22:58 | 3491411 CURWAR2012
CURWAR2012's picture

I'd like to see this chart on a log scale...and corrected for inflation so we see real rates

Tue, 04/23/2013 - 23:10 | 3491446 Gamma735
Gamma735's picture

I notice there is not red dot to indicate when the Fed was created.

Tue, 04/23/2013 - 23:14 | 3491449 Dr. Engali
Dr. Engali's picture

Well since every point from high to low yield in this chart led to a war larger than the preceding, I'm guessing we are in for a doozy.

Tue, 04/23/2013 - 23:18 | 3491467 monopoly
monopoly's picture

Great chart. And partly guys Zero Hedge posts articles that they do not agree with so we can see the other viewpoint. There are not many of us yet on this planet that understand what is transpiring over a long period of time. I like to visit both sides and then make up my own mind. 

It is scary though to think how most people view the global markets and how serene our markets appear to be. At least I am scared.

Tue, 04/23/2013 - 23:43 | 3491535 polo007
polo007's picture


Aa warning about a coming financial crisis

Tumbling commodity prices over the past week are a warning sign to investors that China’s “economic miracle” is actually a gross manipulation of markets that will eventually have a nasty ripple effect across the world, says an outspoken critic of central banks’ stimulus efforts.

“Something has changed, and more significantly, people have noticed the change,” says James Grant, publisher of Grant’s Interest Rate Observer, a highly regarded bimonthly commentary on the world’s financial markets.

Mr. Grant says the world’s major central banks have been distorting the true price of assets, such as stocks and commodities, by suppressing interest rates and printing trillions of dollars worth of currency in an effort to stimulate demand. He believes that such policies by the People’s Bank of China will prove particularly harmful given that they are layered on top of the central planning policies of the Communist Party.

Efforts by the U.S. Federal Reserve and other central banks to jump-start demand have failed, Mr. Grant argues. Each new dollar or yuan added to the economy is having less and less of a stimulus effect and is instead further inflating asset and consumer credit bubbles. As China’s economy continues to slow, commodity prices will decline further, and it’s possible that China will even slip into a recession, he says.

In today’s world of suppressed interest rates and manipulated markets, financial crises come faster and more furiously, Mr. Grant says, noting that it took 25 years for stocks to rebound from the Depression in the 1930s but only four years for markets to recover from the financial crisis in 2009. The accelerated cycles are the result of distorting policies and they leave governments and markets “more accident prone,” he says.

Investors should respond by keeping large amounts of cash, looking for buying opportunities in depressed sectors. At the moment, shares of mining companies look like one of the best contrarian plays, he says.

Mr. Grant is also a huge fan of bullion, which he categorizes as a monetary asset rather than a commodity. “The price of gold is the reciprocal of the world’s faith in management of the world’s central banks,” he says. “If you believe that they are in charge of events, as opposed to events in charge of them, then you do not want to waste your time with gold.”

Tue, 04/23/2013 - 23:45 | 3491546 CURWAR2012
CURWAR2012's picture

He is a wise man indeed

Tue, 04/23/2013 - 23:50 | 3491559 fonzannoon
fonzannoon's picture

I jus wish I knew what Stifel Nicalous felt about all this.

Wed, 04/24/2013 - 00:23 | 3491635 Divine Wind
Divine Wind's picture



Look what happened on the chart the last time the line dipped this low....

Wed, 04/24/2013 - 01:02 | 3491703 Atticus Finch
Atticus Finch's picture

Call me dumb or straighten me out, but I thought the Bond bubble was not the price or the interest rate, but the extraordinary amount of bonds sloshing around in the financial markets.

Wed, 04/24/2013 - 01:05 | 3491705 Everybodys All ...
Everybodys All American's picture

Hey Fonz

 The way I read the chart is that it shows the bubble we are in and the next move in interest rates is not likely to be lower. Sourced by Goldman Sachs. Relax.

Wed, 04/24/2013 - 02:11 | 3491743 Ham-bone
Ham-bone's picture

Cyprus is not the is only a scare tactic.  Couple that with the dissassembly of Rheinhart/Rogoff and austerity in general and this is a setup for the greater paper over. 

Simply ask yourself, what will the people go along with - stealing their money from their accts or printing money that "seemingly" has no inflationary impacts and "lifts the economy"?  The narrative of "printing is good" and sequester or reducing bene's or slowing the economy in any way is being built and those who oppose will look the fools as 10yr drops below 1%...PM's are still in the running for a bright future.

BTW - copper just broke to the upside and is running...sounds like somebodies putting the word out that they will be upping or extending the printing?

Wed, 04/24/2013 - 01:35 | 3491749 tok1
tok1's picture

this will end with a public sector write off between BOJ and Govt.. (US Will watch and follow).. Thats why BOJ is stepping up the buying ops so at the time of the write off thier holding will be significant part of outstanding issuance.  The timing is difficult extreme would be war type situation ie emergency.... or some financial crisis.. which allows for extreme move ie pubic sector wrtie off followed by balanced budget ammendment. 

The key is bond issuance is really just an increase in money supply.. ie so the increase makes the currency worth less than other assets that havent seen such a rapid increase in supply.. but the rate of interest really is up to Govt ie they can make it 0% or 10& or not an issue as the BOJ/FED pay the interest back to the treasury anyway ie FED?BOJ bonds are really interest free.

The  old style was just increase Govt spending and issue more notes to pay for it..The problem is they stopped that type of activity in the 30:s after Germany:s hyperinflation.. but desperate Govt.. will destroy their people:s savings.. as the lack imagination to find proer solution..(ie thats nature of Govt their populists),,,

ie the currency will crash... the bonds will just be public sector written off.. 

consequences will be the same

Wed, 04/24/2013 - 02:00 | 3491772 ebworthen
ebworthen's picture

So last time they were this low, ever, was WWII era?

Over the course of 220 years?  Surely that signifies something other than "rational".

Wed, 04/24/2013 - 02:55 | 3491817 newengland
newengland's picture

Signifies fools buying zionist claptrap, all for sovereign debt servitude, gone pear shaped me ol mucker.

Wed, 04/24/2013 - 02:16 | 3491781 polo007
polo007's picture

The Federal Reserve has been explicit about why it has been holding short-term interest rates near zero and has purchased $2.5 trillion in Treasury and government-backed mortgage bonds to push long-term rates to once-unimaginable lows:

Not only does it hope cheap money will make borrowing and spending more attractive to businesses and consumers. It also wants to chase investors out of super-safe U.S. Treasurys and mortgages and into stocks, corporate bonds and other assets riskier than Treasurys. Boosting those prices, the central bank figures, will make households richer, increase the value of collateral that banks hold against loans and encourage executives—always happier when stock prices are rising—to invest.

Chairman Ben Bernanke and his allies at the Fed think all this is working as they had hoped, though they caution regularly that it isn't enough to resuscitate the U.S. economy nor is it without risks. Critics argue that it isn't doing much good—and that the risks are greater than Mr. Bernanke realizes. Now new Fed governor Jeremy Stein, a Bernanke backer, is arguing this bond-buying might have hidden benefits.

One oft-cited risk the Fed is running is that keeping rates very low for a long time could lead investors, big and small, to take ever-greater risks as they seek investments that promise better returns. That, in turn, could create a new set of financial bubbles. "These concerns should be taken very seriously, and a lot of work at the Fed is devoted to monitoring such risks," Mr. Stein said in a speech last month. "[T]here is some qualitative evidence of reaching-for-yield behavior in certain segments of the market, but we are not seeing anything quantitatively alarming at this point. Of course, the worry is that one often sees only the tip of the iceberg in these kinds of situations."

It isn't hard to spot bubble candidates. The price of farmland has been soaring. The U.S. Department of Agriculture's measure has risen 28% in two years. And Merrill Lynch's index of high-yield debt—borrowing by companies politely labeled "below investment grade"—is up 12% in the past year.

But Mr. Stein pointed to one way in which the Fed's bond-buying, quantitative-easing extravaganza might be contributing to financial stability. It is encouraging companies to rely less on short-term borrowing. That is welcome. "A major source of problems during the recent crisis," he said, was that firms, particularly in finance, "were relying too much on short-term debt." That left them exposed when markets panicked in 2008 and rolling over short-term debt became difficult, often impossible.

Before Mr. Stein left Harvard for the Fed, he and colleagues Robin Greenwood and Samuel Hanson showed statistically that when the federal government does a lot of its borrowing at shorter maturities, companies tend to do a lot of their borrowing at longer maturities, and vice versa. By reducing the supply of long-term Treasurys in the market, the Fed's heavy purchases are akin to the government borrowing more short-term.

There is a wrinkle. While the Fed is subtracting from the market's stock of long-term Treasurys, the Treasury itself seems to be fighting the Fed. It is adding to the supply of long-term Treasurys by selling more of them. The average maturity of the Treasury's debt outstanding has been growing for years. At the end of September, it was 64.4 months, well above the 30-year average of 58.1 months.

The Treasury's official explanation: We're trying to finance the government at the lowest cost to taxpayers. We aren't using a borrowing mix to influence the macro economy, and we aren't coordinating with the Fed on this. As the chart accompanying this column illustrates, the Fed's recent purchases of long-term Treasurys have more than offset the Treasury's moves in the opposite direction.

Wed, 04/24/2013 - 02:58 | 3491823 newengland
newengland's picture

The private corporation of the un Federal no Reserve Board are a bunch of gangsters in fine suits, currently most assisted by the guy who knows a guy Jamie Dimon Geezer, blow yer head off mate gangster bankster.

Wed, 04/24/2013 - 02:51 | 3491812 newengland
newengland's picture

Rothschild would agree: buy bonds, put nations into debt servitude. Such is the way of Zionists, all for one, one for all zionists.

It is a pity that this systematic fiat fraud and the bombs that defend it have fallen upon the USA in particular, and profits Israel in particular.

Money traders are useful idiots and others are educated fools in the words of Lenin, funded by Rothschllds who also funded Marx, Stalin, Hitler and the CIA.

Wed, 04/24/2013 - 03:01 | 3491827 newengland
newengland's picture

All this reverance that ZH gives to gangster banksters. Tosh.

Wed, 04/24/2013 - 03:09 | 3491835 Ghordius
Ghordius's picture

why do you think it's reverence? one of the reasons why I'm often here on ZH is to read what the Squid writes

btw, do you actually read the articles at all or are you here just to plaster the blog with nice flowers?

to which: what flower is this in your avatar?

Wed, 04/24/2013 - 03:55 | 3491851 newengland
newengland's picture


I read and sometimes comment on ZH because it amuses me. Sometimes, I write to defend the Constituion, and slay dragons ;-)

The flower is from St. Lucia, although I am from the cold North.

I have an affection for the Americas, and Europe. Other places are attractive too, in my opinion.

Also, I like the ZH fight club. A fool and his money is soon parted. I'm not a fool.

Wed, 04/24/2013 - 06:07 | 3491993 Ghordius
Ghordius's picture

nice flower. my question was more if you read the articles, too or only the comments

Wed, 04/24/2013 - 03:07 | 3491831 otto skorzeny
otto skorzeny's picture

itz all good doodz-aapl is what the kool kidz on CNBC want again.

Wed, 04/24/2013 - 03:27 | 3491848 MythicalFish
MythicalFish's picture

Ecclesiastes 2:14-15:

The wise have their eyes open, the fool walks in the dark. No doubt! But I know, too, that one fate awaits them both.
'Since the fool's fate', I thought to myself, 'will be my fate too, what is the point of my having been wise?' I realised that this too is futile.

Wed, 04/24/2013 - 04:57 | 3491944 CitizenPete
CitizenPete's picture

I may not be a fool, I have a PSV7.

Wed, 04/24/2013 - 05:05 | 3491950 Bearwagon
Bearwagon's picture

The sacred assignment of a real fool is to tell his fellow human beings about the tragedy and the comedy that life is, whether they like to hear it or not.

Wed, 04/24/2013 - 05:38 | 3491969 negative rates
negative rates's picture

Volker fucked us over bad, raised rates during a nasty recession and high oil prices so the rich could financialize the economy. We are still payin today as that was considered successful and now we borrow cheap to lend high. It is the greatest heist of American dollars ever performed.

Wed, 04/24/2013 - 05:52 | 3491978 orez65
orez65's picture

"... the extraordinarily low bonds yields, they have resulted from many fundamental and RATIONAL drivers ..."

Interest rate is the price of money.

The price of money is now centrally planned by the Federal Reserve.

The Soviet Union could not centrally plan correctly, even, the price of bread.

But Ben thinks that he can RATIONALLY set interest rates!

This article is total and absolute Bull Shit.

Wed, 04/24/2013 - 06:10 | 3491997 Apostate2
Apostate2's picture

I have read in the comments, presser cookers. castor oil (beans) and even Dear Abby. With reference to the 'malaise' it reminds me that we are back to the future from the late '60's- and later  '70s. All the economic indicators (whatever their source) remind me of this decade. Even the philosophical digressions, whatever their provenance, recall this generational wasteland. Generational cycles are usually about 30 years. I may be 'old' but I do not wish to live in the past. Every time some one chants 'forward' I now see backward. Creative and contrarian thinkers and movers it is time to make a new, vibrant economic thinking, fight the malaise, the corruption and give us back a chance to live and prosper. Bring back the market.    

Wed, 04/24/2013 - 06:22 | 3492005 Bearwagon
Bearwagon's picture

It seems to me, as if the death of the "market" came much too soon for you, so now in it's absence you feel somewhat lost. You may take small comfort in your decision to remain by it's side through its few remaining days. From the dead corpse, buried under tons and tons of rubble, a new market will rise someday. But the one you and I used to know is dead and gone ...

Wed, 04/24/2013 - 06:31 | 3492010 Apostate2
Apostate2's picture

How true. However I can not seem to wrap my head around that past mistakes have now become a (tired, discredited) sort of perverted blueprint to economic 'recovery'. What is controlled and planned ( if that is one's thesis) may be reversed . What has happened to sense and good old sensibility.

Thu, 04/25/2013 - 01:57 | 3496364 bunnyswanson
bunnyswanson's picture

Sherlock Holmes explains (10 min or less) (Gordon Duff)

Wed, 04/24/2013 - 06:37 | 3492012 orez65
orez65's picture

The Fed is, basically, managing a fraud, a dollar Ponzi scheme.

It will end as all Ponzi schemes end, with a collapse.

Real capital = production - savings

Real interest rates indicate how much capital is available for investment.

Fiat capital is a lie.

Centrally planned interest rate is a lie.

All lies lead to more lies.

Our financial system is a lie.

Get out of it.

Wed, 04/24/2013 - 06:54 | 3492027 Ghordius
Ghordius's picture

what the hell, I'll take this bait. methinks that "bubble" and "Ponzi scheme" are two terms that confuse more than help. at the end, most financial transaction are about bridging time, and so imo the correct "picture" is bridges

an ancient Roman shepherd that goes to town accepts salt against his wool not because he needs that much salt but because it bridges his future consumption of other things - i.e. salt serves him as money

and this is what all things financial do: bridge the future with the present - and so they are heavely dependent from the expectations for the future

now of course, there are many ways to build a bridge, and many materials you can choose, and many techniques

you can of course step on an existing bridge and call it a lie - because you don't expect it to exist forever. meanwhile it might happen that people crossing it just stare you in disbelief and ask: "don't you know that the college of pontifexes called this bridge safe? that has been around for many years?"

but yes, all bridges collapse, eventually - even the one in Rome that the college deemed unsafe, refused to pay for and is still used by heavy traffic after a couple of thousand years

Wed, 04/24/2013 - 19:10 | 3495136 orez65
orez65's picture

Yes that real bridge was built with counterfeit money and it may serve a useful purpose.

Just as the US has built many useful things with counterfeit money, highways, hospitals ...

But it has, recently, financed the Iraq and Afghanistan wars, corn ethanol, windmills, solar panels ... with counterfeit money.

The point being that by counterfeiting they haven't had to increase taxes to pay for these capital misallocations.

If they were using real capital taxes would have to increase, tremendously, and interest rates would dramatically increase.

This would be a clear indication to the market that things are wrong.

Instead, by counterfeiting, they hide their wrong doing.

Wed, 04/24/2013 - 18:55 | 3495076 orez65
orez65's picture

Hey, dummy:

Real capital = Production - CONSUMPTION

Wed, 04/24/2013 - 07:05 | 3492044 onceinalifetime
onceinalifetime's picture

This time it will be different.

Until the 70's, the dollar was fixed to the gold in some way so the rates could not rise too high.

In the 70's, this relation was cut and the amount of money was related only to the amount of paper so the rates could go to new highs.

Now, in the 21st century, there is no connection between the amount of dollars, to the amount of paper nor to the amount of atoms in the universe because the numbers are written in removable computer memory.

Hence the rates could reach ridiculous numbers.


Wed, 04/24/2013 - 07:24 | 3492073 Nostradamus
Nostradamus's picture

Who are you, and what have you done with Tyler?

Wed, 04/24/2013 - 07:28 | 3492089 Nostradamus
Nostradamus's picture

ZeroHedge, you might want to think about letting this Tyler go.  There is nothing more obvious in the world of economics than the enormous bubble in government bonds. 

Wed, 04/24/2013 - 07:56 | 3492127 sbenard
sbenard's picture

This is Bubbles Bernanke's theme song:

Except they aren't TINY any more!

Wed, 04/24/2013 - 07:55 | 3492128 Misean
Misean's picture

Nothing particularly bubbly?!?!?!

Have the Tyler's gone mad?!?

Comparing gold standard 10y rates with pure fiat 10y rates?!?! HUH!?!?!


Wed, 04/24/2013 - 08:18 | 3492159 Quinvarius
Quinvarius's picture

Goldman Sachs, huh?  Lets hypothesize that this is the exact top of the bond market.  What would Goldman Sachs say, now that they are obviously the Government's new contractor de jour? 

Wed, 04/24/2013 - 08:40 | 3492198 Aaron Burr
Aaron Burr's picture

Um, isn't the bond market mainly sophisticated so-called "smart money"? Who would park $billions of moneys in a negative (real) yield vehicle? Does not this trade only work if you if you are really, REALLY expecting deflation to make up the lack of real yield? Am I missing something here?

Wed, 04/24/2013 - 19:25 | 3495180 orez65
orez65's picture

The bond market is not for "smart money", it is a place to park money and try to get some interest with "safety"

Savings and pension money have to go somewhere.

Mostly the stock market and the bond market.

Both soon to collapse and/or be turned into Government bonds for your safety.

Wed, 04/24/2013 - 09:04 | 3492282 MMcmillan
MMcmillan's picture

We have massive asset bubbles. No amount of printing will save us from massive deflation, followed by a depression and stagflation. gold is not a producing asset and is not the answer. gold is good as a payment currency. everyone in the world will accept it. not, however, as an investment vehicle. 

the only right asset to own is a good cash flowing business with no leverage that is still likely to work in a depression. own your own business. 

Wed, 04/24/2013 - 11:51 | 3493100 ozzz169
ozzz169's picture

$100 bills....  your own business better be making something people want or a liqure store...

Wed, 04/24/2013 - 11:48 | 3493081 ozzz169
ozzz169's picture

Not bubbly when things are at all time highs, and unrealistic prices, what is this some new definition of a bubble?  Just because you say why something is bubbling doesnt mean its not bubbling, what a stupid conclusion.  .com was not a bubble because people expected these companies to make trillions in the future, oh look eveyone figured it out and got out, what you think will happen when fed stops buying and starts selling (yes it was hard to say that with a straight face).

I guess this means goldman is shorting bonds now, if they are trying to convince people to buy them.


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