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The Annotated (223 Year) History Of The US Bond 'Bubble'

Tyler Durden's picture





 

The last few days have seen significant shifts in the term structure of US Treasury bonds; auctions have not gone well and despite the world's expectations for 'taper' to lead to a surge in rates, the long-end of the bond-market has rallied. While Goldman might believe the 'bond bubble' is starting to pop, the following 223 years of Treasury yields (through free-markets and centrally-planned) sheds some light on what the 'new normal' level of rates really represents because, as we noted previously, the world is so levered now that any 'reversion' in rates is simply unthinkable.

 

 

Notice any difference pre- and post-Fed?

 

Chart: Goldman Sachs

 


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Sat, 12/21/2013 - 15:31 | Link to Comment SmackDaddy
SmackDaddy's picture

heading back to the good 'ol days of 1938.

Sat, 12/21/2013 - 15:51 | Link to Comment remain calm
remain calm's picture

Can we please see the same chart for Japan?

Sat, 12/21/2013 - 15:54 | Link to Comment OnceandForever
OnceandForever's picture

Yes, exactly. Long rates are still trending down. Deflation and slowdown and inability to raise rates ever will carry the day. Japan at 60 bps is correct.  US at 60 bps is correct.

Sat, 12/21/2013 - 16:44 | Link to Comment Boston
Boston's picture

I love the Japanese analogy. SO many smart folks have been so wrong about shorting JGB's for so many years, you'd think they'd learned a lesson when it comes to the US Treasury market.

If Japanese sovereign debt can balloon to almost 250% of GDP and yield ~60bp today, then the US sovereign debt (nowhere near 250% of GDP) can certainly keep on ballooning for many more years, all the while dropping in yield.

There's a reasonable chance the US 10yr could yield 50bp (not 5.0%) before this long cycle is over.

Sat, 12/21/2013 - 17:22 | Link to Comment vote_libertaria...
vote_libertarian_party's picture

I think with Japan the dynamic that is different is that they are a savers society.  Massive pension build up.  Well last year was the first year (because of aging demographics) their pension companies had a net drop in assets under management.

 

You would think as that accelerates the big buyers would be stepping away from the table.

Sat, 12/21/2013 - 18:15 | Link to Comment malek
malek's picture

That, plus Japan was only able to do this in the shadow of their sympathetic big brother.

Who is the US' big brother? China?

Sat, 12/21/2013 - 15:34 | Link to Comment logicalman
logicalman's picture

This is obviously the stabiity that central banks bring.

Sat, 12/21/2013 - 16:12 | Link to Comment savedbyfreethought
savedbyfreethought's picture

Stability at the cost of everything that matters. Welcome to the island of stability surrounded by a sea of madness and hopelessness.

Sat, 12/21/2013 - 15:33 | Link to Comment trader1
trader1's picture

the big short?

Sat, 12/21/2013 - 15:47 | Link to Comment new game
new game's picture

not so sure on the big short, unless you can "print" some dollars to stay solvent while we go "japan" for 20 years..

Sat, 12/21/2013 - 15:55 | Link to Comment michael_engineer
michael_engineer's picture

Maybe this is what happens when the CBs don't see resource constraints affecting their short term business models, and then run the economy into the stops in their near sighted pursuit of profits without careful moral and ethical considerations.

Or maybe this is what happens when the CBs do clearly see resource constraints affecting their mid and short term business models, and then they run the economy into the stops in their near sighted pursuit of getting some while the getting is good. 

Sat, 12/21/2013 - 18:02 | Link to Comment michael_engineer
michael_engineer's picture

Merry Christmas everybody.  

Everybody out there is looking for a good Christmas gift.  This could be just what some of the ZH readers are looking for.   

Here is a link to the free version/free Christmas present.  It runs on an iPad and is one of the most colorful, dynamically changing, and artistic apps you can find.   https://itunes.apple.com/us/app/icanmorph3/id736763181?mt=8&ign-mpt=uo%3...

But if you get your knickers knotted easily and are overly concerned about spam, move along, nothing to see here, for yourself anyway. 

It's simple in ways and not "commercialized", no ads, no in app purchases, yet elegant, exquisite, and aesthetic.   This new suite of apps was mostly developed by a single developer : http://logicenginedesigns.com, pretty much living out of his truck, staying in motels on El Camino Real, and hanging out near Cupertino trying to learn and build skills in mobile programming.

The free version makes a great Christmas present.  The app has been approved my Moms with Apps (http://momswithapps.com/members) and it lets you do dozens of unique and fun things that you have never done before that are intuitive, intellectually stimulating, creative and extremely visually appealing.

Please don't slam me for spam because I am sure that several ZH readers will find value here and a useful way to brighten some children's Christmas, whether that reader is poor and can't afford much for presents, or whether they are well to do.  Either way, the gift has value due to it's uniqueness.  Many parents will spend some quality time with their children exploring the unique controls, beat frequencies, morphing possibilities, and unique patterns that are possible to view.  You don't even have to run out to the store to get it, so it's a very green way of celebrating and giving.

 I frown on spam too, but my track record here at ZH over these past years has been very insightful.  If you've appreciated some of my insights over the years, then please check this out.  If you really need your down arrow fix today, there are several other postings nearby of questionable value that may be better targets of opportunity.  But these are not the droids you are looking for.  They may go about their business.  Move along.

Any long time ZH readers curious enough to download, "kick the tires", and provide a reply/comment?  You might be surprised and find enough merit to pass on the recommendation for the free present to a friend, especially if they have children.

To pique your curiosity, I was at a meet-up in San Fran where the prototype of this app was pitched 6 months ago.  An asian software developer in the audience commented that he thought his rich uncle would buy each of his nieces and nephews an iPad just so they could have this app.  Best --

Sat, 12/21/2013 - 20:26 | Link to Comment SafelyGraze
SafelyGraze's picture

would rather read francis sawyer than this

 

Sun, 12/22/2013 - 08:22 | Link to Comment tip e. canoe
tip e. canoe's picture

perhaps the gift could've been shared in 140 words or less and been more well received, but it's a pretty cool app actually.  plus, it's fucking free for goddess sakes.

bet banzai could do wonders with this.  you probably could too being that you're in to that sorta thing...that is, if you didn't choose to be such a cynical ZHeeple.  

tsk tsk, said the serpent to the lamb.

-1

thanks, michael.   happy solstice to you.

Sun, 12/22/2013 - 09:16 | Link to Comment Absinthe Minded
Absinthe Minded's picture

My birthday, shortest, darkest day of the year. Ya tryin to tell me something Lord!!!

Sun, 12/22/2013 - 09:57 | Link to Comment SafelyGraze
SafelyGraze's picture

negged by a canoe

and zheepled

and cynicled

serpented

lambed

damn. 

one helluva solstice present you got there.

hugs,
all the things that need legislative protection 

Sun, 12/22/2013 - 12:05 | Link to Comment michael_engineer
michael_engineer's picture

I did provide this bailout condition at around 140 words "But if you get your knickers knotted easily and are overly concerned about spam, move along, nothing to see here, for yourself anyway. "  And I tried to get Banzai's attention on it a month ago with a short "Hey check this out" post to one of his personal posts, trying to pique his interest.  But you are spot on that there a new and unique effects not available in photoshop that would compliment anything Banz does with Photoshop.  The parent app is what Banz would find most useful.  Recent and soon to be approved additional controls allows photo rotation by button to rotate 90s, and the pause feature now stops the morphing but you can still control size, spin, taper, etc.  A few tricks to note for Banz : No photo picker yet, but any image on an iPad can become the last image (which then imports to the app but you may need to restart the app because it grabs last photo at app launch).  If the image is on an iPad already, just screen shot it.  If not, email it to self, and "save image".  But the best trick for Banz would be to use images where the background has been made transparant in some places, as the overlapped morphs have smooth edges in places, and become more fractal like and are artistic in ways.  Either photoshop or pngweasal can easily make parts of photos transparent for images with solid color areas.  For technical help/advice , use contact us page. 

Sat, 12/21/2013 - 15:54 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Sort of difficult to make a case for bond yields being "due to rise".  The multi decade trend is unmistakeable.

OTOH, oil will change all this.

Sat, 12/21/2013 - 15:55 | Link to Comment OnceandForever
OnceandForever's picture

The long term trend is for lower rates as we have seen here and in Japan. These governments cannot raise rates...ever. BTW...bonds have outperformed stocks over the last 10, 15, 20 and yes, 30 years. Rates should be less than 2% based on real economic data.  Peace.

Sat, 12/21/2013 - 16:53 | Link to Comment NoDebt
NoDebt's picture

Remember, past performance is always a guarantee of future results.

Sat, 12/21/2013 - 18:41 | Link to Comment falak pema
falak pema's picture

If its a 223 year history its not the original sin of the FED !

ONe reality hits the fan of historical logic and changes the emphasis of the proverbial knee jerk : its all the fault of the FED.

American capitalism was spawned after the federal victory, like the Indian wars of acquisition, under an Imperial Gen. Grant era, where the powerhouse of industrial USA, on the scale of a continent, was truly born...

Mark Twain called it "the guilded age" when the riches of the original industrial oligarchs were born.

To come back to the essential : the Euro banks have just built a Banking bail IN Maginot line; not a Mutti Siegfried line. She will pull out the minute interest rates rise and Draghi will be  dragged under singing : I'm doing whatever it takes...going, going, gone! 

When that happens watch the Statists pulling in the bail in rug from under those banks! 

Sat, 12/21/2013 - 16:03 | Link to Comment 22winmag
22winmag's picture

Shifting or shitting?

Sat, 12/21/2013 - 16:16 | Link to Comment fonzannoon
fonzannoon's picture

first we have to make the jump above 3% to roast grandma's ass one more time and make sure she gets in the S&P. Then we will just stagnate. the fed won't be borrowing on the long end anyway. They will borrow at the short end and pay 0% interest.

Sat, 12/21/2013 - 16:33 | Link to Comment El Vaquero
El Vaquero's picture

Roasted grandma butt.  That does not sound very appetizing. 

Sat, 12/21/2013 - 16:52 | Link to Comment NoDebt
NoDebt's picture

Tastes like chicken.

Sat, 12/21/2013 - 20:22 | Link to Comment akak
akak's picture

It's the new "hedonic adjustment" for cat food for seniors.

Sat, 12/21/2013 - 16:34 | Link to Comment Gutenberg
Gutenberg's picture

What happens if china dumps, i don't know lets say a trillion dollars of bonds on the market. How about other oil producing countries that have these excess dollars when they start taking yuan. Think rates stay the same? Think hyperinflation ensues? Think if they raise rates to suck the money we implode from interest owed on debt? Some explain to me how they get out of these predicaments.

Sat, 12/21/2013 - 19:37 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

They can't sell without a buyer.

Sat, 12/21/2013 - 16:45 | Link to Comment Al Huxley
Al Huxley's picture

I love the recurrent theme/idea that 'because everybody's so levered, rates can never go up'.  That's sort of like me saying 'because I spent all my money on booze and women instead of buying winter clothes, it can never be allowed to get cold now'.  A better way of saying it would be 'because everybody's so levered, they're all going to be truly fucked WHEN rates go up, just like 'because I spent all my money on booze andwomen instead of winter clothes, I'm going to be truly fucked when it gets cold'.

Sat, 12/21/2013 - 16:54 | Link to Comment NoDebt
NoDebt's picture

Yeah, but if the government is the party that's most levered they will outlaw winter and manipulate the weather forecast to match.  Problem solved.  Government-style.

Sat, 12/21/2013 - 16:51 | Link to Comment MollyHacker
MollyHacker's picture

The key to understanding market gyrations (the bigger the better), is the unstable market movements promotes deleveraging of the investors ability to park money on a long term approach.

Sat, 12/21/2013 - 17:22 | Link to Comment MollyHacker
MollyHacker's picture

A goverment bail-in of colleges most likely is on the horizon with a debasement of sustainable wages to support the overall educational cost structure.

Sat, 12/21/2013 - 16:59 | Link to Comment Seal
Seal's picture

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Sat, 12/21/2013 - 17:01 | Link to Comment Clowns on Acid
Clowns on Acid's picture

If the US economy is so strong at 3.5%.... why are 10 yr interest rates @ 1.90%?

Sat, 12/21/2013 - 17:21 | Link to Comment Yen Cross
Yen Cross's picture

  4% and 2.9% respectively. Nontheless your question is 100% valid.

  Why on Gods green Earth are we pumping $75b per month into the banking system with a 4% GDP and equity markets now at inflation adjusted ALL TIME HIGHS?

Sat, 12/21/2013 - 17:36 | Link to Comment MollyHacker
MollyHacker's picture

We are not ~ the fed is pumping itself with a corp-govt bonds to counter a imploding fiat with rocketing inflation (blamed on free market forces).

Sat, 12/21/2013 - 17:47 | Link to Comment Yen Cross
Yen Cross's picture

  We both know exactly what the game and stakes are...

   What happens when the Fed. finally owns the the majority share of the bond market? Does the debt suddenly evaporate. Do other countries sell of their share of the bond market? Does the rest of the world see the United States for what it really is? (printing bonds to monetize current and future debt)

  Who picks up the slack when one of those scenarios occurs? China with $15 trillion additional debt on the PBoC books, that can barely survive interest rate shocks for 24 hrs without swaps interventions?

Sat, 12/21/2013 - 18:08 | Link to Comment eddiebe
eddiebe's picture

We're not pumping anything, it's just the banksters buying everything and making slaves out of us all.

Sat, 12/21/2013 - 18:32 | Link to Comment MollyHacker
MollyHacker's picture

And just to exemplify from what does the Fed buy these bonds with? Absolutely nothing! It's a theft of cognition of the perception of the dollars value and the race to debase the dollar is really all about globalization through destruction of liberties per the creation of tax slaves.

Sat, 12/21/2013 - 18:49 | Link to Comment Yen Cross
Yen Cross's picture

 

 

                                            > Primary dealers

Federal Reserve>  US Treasury                                > hedge funds / pensions    ((< rinse repeat  any questions?

                                           > Sovereign purchasers

 

Sat, 12/21/2013 - 18:05 | Link to Comment buzzsaw99
buzzsaw99's picture

Free markets. Vagaries of perception. The temporary constructs of a feeble federal reserve trying desperately to justify an existence that is without meaning or purpose. And all of them as artificial as the Matrix itself, although only a banker mind could invent something as insipid as treasury bonds. You must be able to see it, Mr. Durden. You must know it by now. You can't win. It's pointless to keep fighting. Why, Mr. Durden? Why? Why do you persist? /matrix

Sat, 12/21/2013 - 18:48 | Link to Comment TheRideNeverEnds
TheRideNeverEnds's picture

I am no bond expert but it looks to me as if we are at a high point in yeilds for this cycle and they are about to decrease sharply.

Sat, 12/21/2013 - 19:15 | Link to Comment Yen Cross
Yen Cross's picture

  Which end of the curve?

 

Sat, 12/21/2013 - 19:25 | Link to Comment buzzsaw99
buzzsaw99's picture

Birinyi's Ruler only works on stocks. /Lazlo

Sat, 12/21/2013 - 19:34 | Link to Comment Yen Cross
Yen Cross's picture

  Good answer Buzz. We haven't crossed paths in a while. I always give you greenies, but forget to sign them.

 

Sat, 12/21/2013 - 19:10 | Link to Comment MollyHacker
MollyHacker's picture

Then there's the ACA, the primary death card for health care, or is-it-for creating another un-funded liability of unimaginable proportions. The middle ground of healthcare itself has been debased with penalties & caps on college expense recovery costs and, of course, that will result in less educated physicians performing more demanding requirements in their perspective fields of study. Either way this will end with disastrous effects.

Sat, 12/21/2013 - 19:10 | Link to Comment GOSPLAN HERO
GOSPLAN HERO's picture

Who is this Chas Caldwell troll on MarketWatch?

Sat, 12/21/2013 - 19:11 | Link to Comment GOSPLAN HERO
GOSPLAN HERO's picture

Who is this Chas Caldwell troll on MarketWatch?

Sat, 12/21/2013 - 23:42 | Link to Comment andrewp111
andrewp111's picture

There was no change in 1913 when the Fed was created. Not even a blip. The really big feature is the huge peak that started running up after WW II, double peaked in 1980-1981 and 1984, and then retraced the entire path down to the present day.

 

You can't predict the future from a graph like that, but if history rhymes, the peak of the next war cycle should see the lowest rates ever, and then a run-up that dwarves the the 1945-1981 run-up by an order of magnitude.

Sun, 12/22/2013 - 02:37 | Link to Comment Dre4dwolf
Dre4dwolf's picture

All the chart means is, that someone is counterfeiting a lot of dollars.

Like

LOT

of

DOLLARS

 

Sun, 12/22/2013 - 06:33 | Link to Comment uk ok
uk ok's picture

Issac Newtons findings appy to everything.. its certainly going to be and interesting ride to the bottom

Im almost wishing the days away waiting for the catalyst to start the reaction, come on china some of us are getting impatient

Sun, 12/22/2013 - 06:35 | Link to Comment uk ok
uk ok's picture

Issac Newtons findings appy to everything.. its certainly going to be and interesting ride to the bottom

Im almost wishing the days away waiting for the catalyst to start the reaction, come on china some of us are getting impatient

Sun, 12/22/2013 - 11:50 | Link to Comment Uchtdorf
Uchtdorf's picture

The answer to how to prepare for the inevitable popping of the bubble is to have plenty of the caliber mentioned in the title of this thread.

Sun, 12/22/2013 - 13:34 | Link to Comment orangegeek
orangegeek's picture

10Y is a good benchmark

 

3 month T bill directly changes retail bank rates - here's how

 

http://bullandbearmash.com/about/us-prime-rate/

Do NOT follow this link or you will be banned from the site!