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Why Bond Yields Are Sliding: Thank China
The entire US Treasury complex has seen yields plunge following last night's "surprise-that-everyone-except-Wall-Street-economists-saw-coming" Yuan devaluation. While there are numerous factors driving the rally in bonds, RanSquawk notes two crucial ones... that will likely persist...
Via RanSquawk,
T-Notes trade higher by around 15 ticks due to the following reasons:
Firstly, the PBoC has acted to weaken their currency in an attempt to remain competitive amid falling exports and this has therefore been interpreted by some as an admission of global growth concerns.
Secondly, in practicality,the PBoC will have to buy USTs in order to weaken their currency. The weaker CNY will in turn could lead to an overall stronger USD, which may influence the Fed's plans for future rate hikes
In other words, China only had to liquidate Treasury holdings to push CNY higher (in an effort to maintain capital outflows), now that it may no longer be doing this there is no more implicit selling pressure.
That and of course China just admitted its economy is bad enough to warrant this kind of extreme policy response which means China will be exporting an tsunami of deflation.
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Bullish.
Cheaper prices on melamine flavored baby formula.
Not to mention all that lead paint on everything.
cheap toxic chinese drywall was also a boon to the economy
Hows about those radioactive table and stool frames? Or was that Mexico?
Ah, they all look alike. The table and stool frames, damnit.
Kardashians.
facepalm
but..but...it was natural organic toxic paint, drywall and table and stool frames
Cheaper prices on everything in strong dollar terms; unfortunately you won't have any of those strong dollars to spend because American corps will offset their dwindling sales with layoffs.
Oh come on, that's so cynical. They wouldn't do that!
Mmmmm, melamine flavored... Just like mom used to make.
Natural, organic, GMO and gluten free, just like from (fuck) Whole Foods
Surf's up!
Hey FED maggots,going to forget to use the word September? LOL How bout September 2097
Too close. Add a few hundred years.
September is coming and the Fed is in the way of a choo choo train.
Begun, The Currency Wars Have
~ Yoda
NoVa
0.01% yield...it's the new normal for the Sheeples.
Next up: minus signs.
Next up: minus signs.
"."
No better way to fight deflation than to print.
QE4 to approach ludicrous speed in 3, 2, 1...
Now Yellen has her completely "unexpected, one-off, transitory" event to give her and the Fed an excuse to kick the can down the road on hiking.
According to Larry Berman of ETF Capital Management:
http://www.bnn.ca/News/2015/8/10/To-say-the-US-economy-is-healthy-is-lau...
“To say the U.S. economy is healthy is laughable”: Larry Berman
ANALYSIS: It is amazing to us that so many smart people think the U.S. economy is doing just fine. Let's look at the facts. The-debt-to-GDP ratio at the end of 2007 was 64 percent as calculated by the IMF. It is currently expected to be 105 percent by the end of 2015. With the U.S. 2016 election heating up as we saw last week in the Republican debate and "The Donald" being very overt that the US is in trouble fiscally, we thought we would run some numbers for a dose of reality.
Of course, overnight interest rates have been zero over this period, which has helped to stimulate demand, to be sure. If the debt ratio held constant around 64 percent (the average of the previous 20 years (post-Reagan), the U.S. would have spent almost 7 trillion less. The debt at Jan 1, 2008 was about 9.2 trillion and it is currently 18.2 trillion. If we backed out about 1 trillion per year on average from GDP and consider zero interest rates (not to mention the QE pushing long bond yields lower) and you conservatively have a U.S. GDP at less that it was in 2007 and about a 3 percent per year contraction. The problem as Trump knows, is that the spending cannot continue. Rand Paul knows this too, but his hardline right policies scare too many people to be a President. Inflation during the period has averaged 1.6 percent and GDP has been about 2 percent (the 1 trillion per year adjusted for inflation (real) is about 5-6 percent per year.
To say the U.S. economy is healthy is laughable. Debt cannot keep growing for much longer and if it does, a Japan-like stagnation seems inevitable. It is likely to be a massive headwind for decades and the aging population demographic suggests we cannot grow out of it like in past cycles. All the smart people in Washington know this (or ought to) and fingers are crossed because they don't know how to fix it without causing a recession. If we are likely heading for a Japan style economic stagnation in a new normal era of sluggish growth, investors should not hide from this or put their head in the sand, or put their cash in GICs. They just need to understand what it means for returns going forward and how to navigate the new normal. I could easily paint a picture where stimulus continues for years and corporations continue to squeeze out EPS by buying back shares and operating very lean. The new normal does not mean stocks can't perform, but it does mean that at the higher end of valuation, a correction (10-20 percent) is increasingly likely and volatility is likely to pick up if the Fed's rate hike experiment slows the economy even more. We believe interest rates need to stay low just to grow at 2 percent so while the Fed looks to nudge rates higher, we do not see things normalizing for decades.
U.S. 10-year yields will likely stay in a range between 1.5 percent on the low end and 3.5 percent on the high end. This is a very long-term view, and we have been in this range since the 2008 crisis, and we will only know if it is correct 20-30 years from now with the benefit of hindsight.
Must have been something they read in Hillary's email that caused all this :)
You hear that Mr. Anderson? That is the sound of inevitability... [/agent smith]
" China just admitted its economy is bad enough to warrant this kind of extreme policy response which means China will be exporting an tsunami of deflation."
How the f were you able to connect those two together. As long as
1. US/UK/JAP/other banks are making loans by the billions
AND
2. No major defaults happen
This is a guaranteed formula for increase of money supply, hence inflation.
Google zero sum.