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Treasury Yields Sliding Back In Line With Taper
For about 15 days between the end of August and mid-September the action in the treasury bond market deviated from our model comparing bond yields to the change in the size of the Fed's balance sheet. Our model simply calculates the three month difference in total assets held by the Fed projected out through the beginning of 2015, when the three month difference will fall to zero.
From the end of August to mid-September long-term T-bond yields rose even as our model predicted they would continue to fall. Since mid-September, though, gravity seems to be reasserting itself on yields as they have fallen nearly all the way back in line with our Taper model.
Yields have yet to make a new low on the year (the 30-year is still 4bps off the low and the 10-year is still 7bps off the low), but our Taper model, if it is still valid, suggests new lows are not far off.
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If the CRIMINALS at the Fed are indeed tapering (which they are most certainly not), shouldn't yields be rising ?
End the CRIMINAL operation named "The Federal Reserve."
How much damage must these SCUMBAGS do to the economy and America, before Americans wake up ?
If QE is risk on, then tapering and no QE is risk off. Rates go lower. Somebody above stated correctly, there is so much currency in the system and it all needs to land somewhere. All returns in a risk free environment where CBs basically guarantee everything and simply "print" what is needed like in Japan, go to zero.
BTW a common valuation metric for publicly traded equities is to take multiples of the 10 yr treasury. So a 10 Yr at 10% may foretell a 20% return over the following ten years (2 times is pretty common). A 10 yr at 2.5 and we are talking about 5% for equities. That will do wonders for underfunded pensions where the funded portion is expected to earn 7%. Good luck with that.
And I have to laugh at all of the buy backs and dividends. Hey, short term that is great. But, if the corporation does not keep the cash under their control, where does it end up? In the hands of the competition, that's where. Either existing companies will utilize the cash to expand into perceived profitable areas or new companies will sprout up with that cash chasing the same customers. That's how profit margins return to the mean.
LOL LOL LOL LOL...
Sorry, where do you work again ?
By far the dumbest comment I have seen in a while, ok, a week, on ZH.
Pension plans & passive index funds have led us to this exact point by substituting the risk capital of the 1950-1972 corporate paper for gov. muni & MBS yield products that require 1/8th of the diligence and all the risk liability being hived off to a rating agency and/or deriv desk. Why work to find the next General Electric (circa 1938) and price a run at 7% for 20 years when you can get 7% by just lending the city of Detroit cash they can't ever repay, but can roll over for 45 years at 10 bps fees.
Lets just call a spade a spade: at this point over 80% of the US pension schemes and mutual fund managers are insolvent in the US/EU. Like Japan, they, and most of the "greatest generation" have zero interest (ha!) in doing anything of economic value that may place their pensions at risk, or jostle their wealth out of a hard earned (ha!) retirement. As such, until we see a fundamental shift (or forced shift) out of gold & bonds into productive cash generating activities, the liquidity trap will continue because people are more concerned about "risk" than "growth". That problem is reflexive, as seen in how the dollar trade is pulling not back because of a rate hike, but the perception of rates, and the fear of a cash starved ecosystem.
On that note, let's test your competency:
If dividends were a "reversion to the mean" please explain what makes up the majority of DOW and US Growth since 1929. Hint, its not capital gains.
Next, if you are at all qualified please back up your statement that economic profits are best defined by cash expansions, because that's a lie; its net working capital managment that defines economic growth, also economic profits are not equal to accounting profit margins. You should have learned that in sophmore finance.
You can buy insolvent bonds when perceptions permit it; and "everyone is doing it"; but who are you going to sell them to? This massive shift into junk paper is the real bubble that the Fed. blew, and I think there's a good chance it'll be the one that makes the headlines. The headlines about the great crash, "that no one could have seen coming".
My comments stand on their own. And, you are an idiot.
@most interesting frog in the world.
I enjoyed and basically agreed with your analysis. Don't let a rat spoil your day.
IMHO history is not the best guide, here. I believe Bond Yields will continue to rise; say for instance, at Christmas Time they'll be higher than they are now; significantly higher.
the fed has friends in low places (cough, belgium, cough frankfurt, cough tokyo) so there will be some deviations. there is no market, there is only old yeller and her minions abroad.
At this point the size of the FRB balance sheet is somewhat irrelevant.
The reason being that there is currently so much excess liquidity out there, that ceasing to add thereto is not like taking it away when there's any even modest demand.
The system is drowning in money
And nobody wants to borrow.
It's called a Liquidity Trap and rates will continue to trend lower until somebody finds something to do with the stuff except parking it in bonds and goosing stocks.
The World is Awash in Every Major Currency
That's why the big central banks are giving it away for free (almost)
And they're scared shitless of economic contraction and deflation (I didn't forecast either, BTW, I'm simply saying they're scared of those conditions ... terrified)
Taper -> "Risk Off" -> bond yields should drop as stocks drop in unison