This page has been archived and commenting is disabled.
8 Reasons Why The Long-Bond Is Going Under 2.50%
Via Scotiabank's Guy Haselmann,
I’ve been a bond bull since February, frequently predicting that the 30 year would fall below 3% by the end of the year. Last week, I said it would fall below 3% by Thanksgiving; a call I still standby. For the reasons that I mentioned on a morning call, I will give the shortened version of a case why the long bond may even be headed toward 2.5% in 2015.
As the country managing the world’s reserve currency, the US needs to run a chronic current account deficit to supply the world with dollars. Yet, in running a chronic perpetual deficit it undermines confidence in it. This is what is known as the Triffin Dilemma.
Many believe QE3’s printing of $1 trillion per year (of a fiat currency) would be the tipping point that would debase the dollar. Bitcoin become popular and Gold soared. The world was flush in dollars. EM corporates issued in dollars, expanding the outstanding float of such securities 7X, versus 2006 levels. The debasement never happened and now that the QE is ending, the world will have fewer dollars. In turn, the dollar soaring, while Gold is under pressure and the Bitcoin has collapsed (75%).
Most importantly, the shale revolution is structurally shrinking the size of the US current account and fiscal deficits. The US is producing an extra million barrels of oil per year. Throw in a looming interest rate hike and the dollar is rising (more demand than supply). Since the US is exporting less capital, liquidity in being tightened abroad, particularly for countries whose currencies are tied to the dollar (China) or who depend on commodity production (EM).
Reasons to like long Treasuries:
- To obtain more dollars, these countries can try to export more or they can deflate their currencies. Either result is deflationary for the US.
- Bank regulation means that new bank deposits are going into Treasuries and away from loans and credit securities.
- Rule changes from the PBGC will increase demand over time for long dated Treasuries (asset allocation shift away from equities) as penalties for under-funding become more punitive.
- Bad demographics and higher debt levels will act as economic growth headwinds.
- The falling fiscal deficit will result in less Treasury issuance going forward.
- The Fed owns over 40% of all secondary Treasury securities 10-years and longer, so there is a shortage of high quality longer dated securities.
- Geo-political tensions are the highest in decades.
- China is reeling in its credit and real estate bubbles further hurting commodity exporters. (etc)
Equities and credit instruments will be hard pressed to justify valuations. With little pricing power and economic growth that is likely to be modest at best, revenue growth and profits are unlikely to be adequate enough to justify lofty valuations.
I maintain my bullish view on long Treasuries and implore investors not to underestimate the upside potential (in price). Almost everyone is expecting much higher yields in the near term, but a 30-year drop in yield toward 2.5% should be considered as a possibility.
- 16289 reads
- Printer-friendly version
- Send to friend
- advertisements -


the 30 yr bond when all said and done
drumroll, please
..... < 2%
.......and the ten year will be at .75%. Joe Kernen will still be screaming that you MUST OWN STAWKS.
you're bringing back the old days ... haven't watched them in at least 7 or 8 years ... i could watch tomorrow and not have missed a thing
It's painful and comical at the same time. I watch from time to time in order to keep up with the establishment talking points.
Me too. Deja vu all over again.
Obviously no mqn made bond bubble here....holy bagezzes....wi tu loi
True dat, although it might take a couple of years. Japan (30Y = 1.65%) and Germany (30Y = 1.8%) are already there, of course. I just wish we had 40Y bonds like Japan, to get a bigger pop as yields drop.
" The debasement never happened" please stay away from Devner.. It is impacted your thought process
Please, in two words...
unfunded liabilities
true
but an act of congress could eliminate (by raising taxes, cut benefits, or combination)
really wouldn't get worked up about them ... what can't be paid ... won't
Sure, but if you think the people on the other side of those liabilities simply "dissappear", you are quite naive.
Personaly, I see great opportuniies in the coming chaos.
what can't be paid ... won't
it is that simple
Some will have the calories available for consumption that are necessary to actually do something, some won't.
It's really that simple.
FYI- people can be "paid" in a number of ways. Stores of consumable and transportable calories remain somewhat limited.
9. The US federal government needs to roll $8 trillion of its debt every year.
Like the NYSE, the U.S. government is becoming less relevant to the global population every day...
is what it is...
What can't be burnt won't
Good make work project scrubbing the soot off of it!
Two more words
Ebola Zaire
problems dissappeared
CONgress has a better chance of survival if they were to declare ownership of every first born male to be sold to pay for this rather than crawfish on benefits.
pods
Pods,
Off topic. your avatar inspired me to finally read Alan Moore's version of V. Thank you, sah.
I thought that was why they nationalized Student Loans after disallowing them from bankruptcy.
We are creating 200k jobs a month. The unemployment rate is 5.9%. There is no inflation but the fed does not want to be too far behind the curve when the economy really starts getting some legs. The fed has repeated this over and over and over. Clearly a rate hike is necessary, according to them. They are starting to kick the shit out junk debt related companies. This is creating churn and the appearance of an actual market.
There is no market. There is only the bernakyellen.
https://www.youtube.com/watch?v=cJX1REQB12o
i've duly noted your 3% call on 10yr
we'll see hoos right
please, given enough time everyone's call is going to be "right".
so fucking what?
well we may as well shoot the shit as long as we sit around here waiting for the big thing.
In my world it really doesn't matter. The plants must be grown as efficiently as we can and that involves a lot of real fucking work/energy.
I know we will eat well. We enjoy life and that's what really matters anyway.
You guys play nice today.
Note that the white farmers didn't fare too well in Zimbabwe.
Who fucking cares troll?
well, i didn't give the exact call (from last week)
fonz said 3% before 1%
i said we'll never make 3% before 1%
It's funny my gut tells me the lower yield club has this one right. I am just so used to seeing us all scratch our heads on here saying "wtf how is this possible?!" that I just assume it's going to happen again.
Not only is that logic spot on- the formula you use to arrive at the conclusion is flawless.
It goes like this.
Take everything you think you know, arrive at some conclusion, and then select the polar opposite answer- the one you consider least likely. Apply E=Dumbfuck squared. Nailed. People will say this Fonz is a genius.
Thanks I base that logic on carry forward losses.
www.youtube.com/watch?v=cKUvKE3bQlY
fonz! It's a Liquidity Trap.
It doesn't even matter at this point if QE stops 100% and the maturities and prepayments are not reinvested.
There's so much money, excess liquidity sloshing around the system, it's gonna take one MF of a FED balance sheet contraction in combination with major increased demand for loanable funds (read real and big economic growth) to force rates up.
Supply and Demand, my dear boy, Supply and Demand
To paraphrase for the gearheads (like me) ,,
The engine is bogged down at low rpm, making no usable power.
The throttle remains wide open.
External forces are throwing excessive fuel at the problem.
There is no velocity in the intake charge to create a good combustible mixture.
The only cure is to let the excess liquidity evaporate and start over.
The only possible outcome is to have the rpm drop more ,,, eventually to zero.
I guess I just don't get it with the whole bond bulls thing. I understand that these yields are an important barometer and all that, but I still find it fascinating that so many people's idea of a 'rush to safety' involves loaning money to such hopelessly bankrupt entities such as the US, Japan, or most EU countries which are guaranteed to pay less than the rate of inflation. The only thing they know how to do is print moar money or create moar debt.
Creating more debt is printing more money, and you are right. It's all they know. The currency must be ultimately destroyed to make way for the new system.
"What can't be paid won't be paid = Consequences".....
Having said that in Writing, our Main problem is Medicare.....
At some point, as correctly commented below, there will be a change that eliminates what can't be paid....
Yes, there will be Social and Political Consequences....
But the US will survive that Financial Reckoning...
With regard to Social Security, it is much more amenable to repair:
1. Means Testing
2. Remove the 2.9% Cap
3. Raise the Retirement Age.
All of the Above, Politically Unpalatable, but inevitable....
The Mantra of "Unfunded Liabilities" bringing down the USA is flat wrong, and will not happen....
The Real Threat to the USA and World is EROEI.......
That is what can bring it all down.....
Add a 50%> carbon tax to that EROEI, and like SS, the books will be "balanced" on consumption of energy, as well. Of course, just as with big cuts in entitlements, the western standard of living will suffer major declines.
Ass grass or gas, in the end only a handful of elites will ride for free.
Yes, and for some reason "present and future wars" are not considered Unfunded Liability hazards.
Still waiting on that "looming rate hike"......for the last several years.
I guess I'll just keep on loomin'....
it'll never (not for a very long time) get over 1%.
could see a few symbolic quarter point moves
Yup, waiting for that first quarter point jump in the FF Rate. That'll be a 100% hike. Groovy.
http://www.marketwatch.com/story/spain-may-have-a-second-case-of-ebola-r...
Don't worry, it's contained and people like you who worry about it are nuts just like the bird flu people. I know this because Joe Kernen told me so.
I had my daughters checkup this am. Everything was fine until they went to give her the flu shot. The doctor politely told me I was a crazy asshole for not letting them give it to her and I politely told her she was an evil pos for insisting on it. My kid has perfect teeth too, and yet the doctor insisted on flouride additives which won't be used.
WE refuse to let the Dr.s give our kids a flu shot and we get the same reaction. They hate it when people don't blindly follow their "recommendations". My sister -in-law takes the opposite approach and her kids get sick every years. 16 years I've known her and the dumb bitch never learns a hing.
wow that was a funny way to end that. tremendous.
I love when I call somebody a dumb bitch with a comment loaded up with typos. I guess I better take a look in the mirror.
Why under 2.5%? Because they can't afford to pay up?
Because for several reasons there is insatiable demand for UST's.
Mr Knuks has everybody in the house trained. When asked if they have had their shots, the TRUTH in Action Answer is "Had all of them, thanks." The omission is "that I'm going to have." Nobody questions the answer.
And my doc doesn't argue at a;l about shots.
I've already talked with her about the crap in the vaccines. She's A-OK with the patient's choice. Altho, I did get the Shingles shot when Mrs K was diagnosed as having it. No thanks... she was in pain.
No flu shots for Mr K
It's all bullshit anyhow, big pha rma lobbying/campaign contributions to get gov to support the inoculation programs to sell the vaccines.
generally speaking in europe flu shots are recomended by doctors only for oldsters, and only if they are frail, and so somewhat in "danger" from a flu
If you find your doctor or nurses paycheck stub....will you look for a line that says "flu shot bonus?"
I tell them that I like the flu. It is better than work. In fact, I seek out highly infected people, step in front of them when they sneeze, and I get a week off- two if its a bad one. I usually do this at the height of college bowl season.
Anyone see ebola shots? I might pony up for that fucker.
I go through the same exact thing with my son every time. They always want to give him a bunch of vaccines. No thanks. Too much toxic crap in them , and I really question their effectiveness. They always use the recent outbreaks to explain how important they are to protect you , but what they don't mention is that typically a majority of the sick people were vaccinated for the very disease they now have. A toxic cocktail of chemicals injected into a baby that is less than a year old and doesn't even appear to work? No thanks. Last time I got that flu shot I got the sickest I had been in 10 years three weeks later( had to take it for work).
"A toxic cocktail of chemicals..." you don't seem to understand how vaccines work. It's not chemicals
take this vaccine as an example - then every vaccine is a story for itself: Polio_vaccine
what you get is inactive polioviruses. it's about teaching your body how to fight polioviruses... by presenting them to it in a less dangerous form
'Her' says it all. The medical system has been overloaded with brainwashed zombies who owe their job to the state.
2.5% isn't even going out on a limb. Try 1.5%.
Whats with the JOLTS data? Huge spike in job openings, but hires dropping. Are the openings crap or non existent? Are they high tech and all we have are burger flippers? Anyone have an idea of the huge divergence?
West Aficans will fill those jobs...oh wait
They are, half of the prison guards in Texas are West Africans... because Americans would rather be on welfare, or we are denied those jobs. Take your pick.
Maybe those are seasonally adjusted, and they aren't adjusting for the ebolized holiday season?
Series Id: JTU00000000JOL (Openings)
Not seasonally adjusted, pretty much unchanged from last month (4924m vs 4986m (P) ).
Series Id: JTU00000000JOL (Hires)
Not seasonally adjusted, down 340k from last month, lowest since March (4453m vs 5095m (P) ).
Series Id: JTU00000000TSL (Separations)
Not seasonally adjusted, increase of 260k from last month.
oh, I get always so incensed when the "Triffin Dilemma" is explained in the usual way
look at this "As the country managing the world’s reserve currency, the US needs to run a chronic current account deficit to supply the world with dollars. Yet, in running a chronic perpetual deficit it undermines confidence in it. This is what is known as the Triffin Dilemma."
it starts with the picture of Uncle Sam's FED and Treasury "managing" the reserve currency. NO such thing, think again, if there is a management, it's by foreign central bankers selling their currency against USDs/USTs, and managing those USD portfolios. Last done in great style: China
then it goes further with "...the US needs to run a chronic current account deficit...". Need? Like thirst? Hunger? Bah. The much simpler explanation is that the US needs to worry less about a chronic account deficit, as long as the USD is the preferred reserve currency... of foreigners
and there is the point: it's foreigners using the USD, after the european national banks were convinced to start this thing in 1946. in short, it's foreigners holding/using USDs that "make" the reserve currency
which gave birth to the (US-centric/view) quip: "it's our currency, and your problem"
the short of it is that every big foreign portfolio diversifies, and so holds USD-denominated assets. national portfolios like those of foreign national banks often accumulate USDs because it's the biggest, it's main assets the most liquid of the world
so, to put it in even more simpler terms, the crown of King Dollar is made out of foreign goodwill. (exception: the huge piles of offshore cash of US-based corps and funds)
meanwhile, woe the moment this is not true anymore, because the FED has no FX reserves at all, meaning it can't do anything if the Dollar should ever devalue too much for it's taste
All fiat going to zero, period. Stop complicating things.
I have a bit of a problem with this kind of "articles of faith". like "all fiat going to zero", or "the end is near", etc. etc.
fiat currencies go to zero, after a period. this is the historical lesson about fiat, yes. eventually. but they often are replaced by a new fiat currency, and life goes on
meanwhile, there is no historical evidence for all fiat currencies going bust at the same time. and lots of evidence to the contrary
the problem with TEOFWAWKI is the WAWKI part, highly dependent on the individual's horizons
We have never had a "global economy" before. I am not advocating for anything falling apart. I am simply saying it will change, period. Anyone who says they know how it's going to change is an arrogant asshat trying to sell you something you don't need.
I strongly disagree. we had a global economy, before. in the age of British free trade dominance. "globalization 1.0", if you want. before the US erected it's first systematic tariff walls
it ended with the start of WWI, and the global reserve currency of that age stopped being used that way because of that: gold
yes, I agree that eventually it will change, and anyone saying they know how is someone trying to sell you something
nevertheless, we are in the "globalization 2.0" era, with the difference of no gold-backed currency in sight
It is not technically true that the US needs foreign reserves to manage its currency. The US can sell dollar futures and use the proceeds to buy foreign assets today.
the NY-FED, you mean. ok, and what happens if nobody wants moar dollar futures? meanwhile... where are those foreign assets?
my point was that every CB has FX reserves... except one. your point highlights that the FED can offer futures on the currently preferred FX-reserve of the others
WW1 was the first born of the FED, created just a few years earlier. GBP was reserve currency until WW2, second born of the FED. They are now looking forward to another birth to bail them out.
The US Dollar is backed by the the Strongest Legal, Military and Economic Power in the World.
China and Russia don't fit in those categories, most especially their Legal Systems.
And unlike Rome, we are the Food Kings; we don't need Provinces.
Finally anyone who thinks China can be the Reserve Currency only demonstrates their Utter Ignorance....
As Reserve Currency China would necessarily Destroy the very Mercantilist Economy they have built....
When you really understand what is going on, you realize that Mexico has a Greater chance of being Reserve Currency than the Chinese...
The "Euro" is NOT backed by any Country in Particular and Germany will NEVER bear the Euro Liabilities =
The Euro is Worthless.
We don't need Goodwill at all.
John Connally was right in the early 1970s and Right Today.....
As I said in 2008, "King Dollar" and in 2010
"A Dollar Bull is Born"......
Well do not forget that the Euro is leveraged with gold, so it may have some value afterall.
dupe
I'd like some numbers attached to that list. I'm not seeing where $1T+ in new issuance EVERY YEAR gets picked up by entities that can't print $1T+ a year.
#5, falling fiscal deficit??? Even at the 6 year low this year it is still higher then before the crash. And that is with some shady profits being transferred from Fanny\Freddie off of bond sale profits (gee, who paid so much for their bonds?)
Peter, ? Schift? said a while ago that there won't be a rate hike because they can't. Once on the juice they won't be able to get off of it. Or something like that.
5% on $17.5 Trillion is $875 Billion, about 25% of the Federal budget. They can't afford it. It will all come out of dollar savers' pockets via inflation, sooner or later.
Off topic a little. Can someone kindly explain the 'financial term' Trannies for me as i really would prefer not to type this in a google search because i might give the wife the wrong impression. Thanks all.
Usually refers to transportation Stocks.... Or an unexpected 'surprise' at a holiday party.
companies that transport real goods.
FYI- TRADE is the ony thing that matters. Only when trade stops does the world have a tendency to engage in a live fire shooting/killing war. History is very clear on this.
Cheers fellas.
very clear......
I always wondered the same thing and was to chicken to ask. Thank you.
I know what you mean Griffy but i think most of our problems are deep-rooted in economics and we all need to get up to speed if we want to turn this thing around sharpish.
One Extremely good reason why it wont. The Fed has a HUGE stockpile of short paper to unload.
The 10 will stay in the 2.25 - 2.5% range as the fed desires, as the fed unwinds it balance sheet. This will allow the 30 a little under 3 but not much, say 2.9%......
The mirage of ultra low european yields will quickly unwind with Catalonian independence, the reality that is Greece and other periphery issues.
The Fed has done an extremely good job of putting it right where they want it. Right up the middle classes ass.
Catalonian independece? You've learned nothing from Scottland or any other "vote" that is supposed to shake markets.
maybe this is why the fed was buying all those bonds the whole time with money that doesn't exist - they knew how f'd the world was and where rates were eventually going to go. i doubt they're that smart but might whind up inadvertantly being the best trade of all-time. for the country's sake (get back to certainty) she really should start scaling-out of her bonds now.
as for the IMF, i don't know what was worse: the IMF bozo who wrote the report answering there are no currency wars going on around the world in country's efforts to export deflation & attain some level of growth OR sara eisen letting him off the hook, not absolutely shelling his BS answer given what is actually happening.
should be fun watching these left-wing, kensian whacko-birds heads explode when the dominos start to tip over.
oh, and whatever you do (according to CNBC fast $), don't short the russell 2000 "death-cross, death-star" at 114.5 when its trading 108.35 last tick.
All dollars are created when some one asks for a loan and they are destroyed as the loan is paid, or written down minus the interest. That interest ends up in deposit accounts and are used to limit the banks lending. Fractional banking.
We don't have gold equals dollars and printing makes gold more valuable
In fact in gold based dollars we had 1 gold to 10 dollars as most people never came for their gold. Still could not print above that ratio and in 1907 we had a crash because they could not print enough money to cover the 1906 earthquake.
Google this " how money is created and destroyed "
CNBC announcers really are nothing more than crackheads looking for another fix. everytime a country like the U.S., germany, china, or japan comes in with bad data, they simply say "well, thats just a case for more QE" ... translation ' "we were wrong, continue to be wrong, but will endorse this strategy until we are proved to be right." fuggin pathetic.
9) The banksters are getting desperate to keep their ponzi going.
10) Keep their heads out of the guillotine head-basket."
An American, not US subject.
Mine is titled "Why Wall Street is going to Hell in just One Reason."
Can't wait for Andrew Cuomo's next speech!
"And JP Morgan was a moron!"
Almost everybody was saying the 30 year would fall below 2% before this is over.
Some go so far to say it will drop below 1%,
and I tend to agree - a nice (induced?) panic in the EUR would achieve that.
Reason #9:
Everytime rates drop like today, someone at Fed speaks to says rates could increase sooner. IMO, the Fed will keep using talk to keep rates from dropping too fast. Expect lots of talk and conjecture.
a great time to bring in the 100 year treasury bond