Treasury Yields Tumble After Art Cashin Warns "All Hell Will Break Loose" If 10Y Hits 3%

If there is one thing that should scare investors out of a crowded trade, its a warning from veteran Wall Street-er Art Cashin.

As a reminder, speculative investors have never been more one-way positioned short in Treasury yields...

And UBS' Art Cashin warned during a CNBC interview yesterday that it could be a bad day for the markets once the yield on the benchmark 10-year Treasury hits 3 percent:

"That 3 percent level is both a target and a kind of resistance. Everybody knows it's like touching the third rail," 

"The assumption is once they do it, all hell will break loose. So we'll wait and see."

The sharp moves seen Wednesday were probably due to "our friends, the long-lost 'bond vigilantes,'" Cashin told "Squawk on the Street."

"We're going to need a couple weeks to see if the bond vigilantes really are back or not," Cashin said.

"Or whether it was simply a fluke. But remembering what bond vigilantes look like, it certainly had fingerprints on them."

But for now, since Cashin's warning, it seems more than a few investors have taken some short bond chips off the table as Treasury yields have tumbled...

 

As bond yields have finally caught up to the inflationary signals from copper/gold...

Comments

the_river_fish Belrev Fri, 02/23/2018 - 15:41 Permalink

Forget Japan and Germany having lower yields than the US, Greece (Moody’s Credit Rating: Caa2) is now paying 83 bps lower interest on 2-year bonds than the US (Moody’s Credit Rating: Aaa).

Italy and Portugal have lower yields than the US on both 2-year and 10-year bonds. In fact most of the Eurozone (and Japan and Switzerland) have negative yields on 2-year issuances. And that is not changing. Countries with zero or negative interest rates (Eurozone, Japan, Switzerland) are doing rather well.

The US dollar has fallen significantly against a basket of currencies in both 2017 and 2018 (so far).

A weaker currency for a nation that imports more than it exports means higher inflation which in turn (normally) means higher bond yields.

The US recorded a $53.1 billion trade deficit in December 2017, the highest trade deficit since October 2008. And bond yields continue to rise, looks like the US is truly an outlier now.

To be fair, the Fed now has the ability to cut rates if there is (another) financial crisis.

https://thistimeitisdifferent.com/us-10-year-bond-yield-feb-2018

In reply to by Belrev

KenilworthCookie Belrev Fri, 02/23/2018 - 16:15 Permalink

The US is considered a "perceived" store of value or safe place to park one's funds.Japan made the deflation mistake 15 years ago and is still paying for it.Germany;well it would help if they controlled their own currency instead of handing off to their 666 overlords in Brussels and also the fact that they are probably the best place in the Euro-zone to park cash outside of Luxembourg who has the gift of being the Treasury dept's go to place to park,rinse,and move large amounts of US debt.Germany should break off with the Netherlands,Finland,and create a Nordic Euro and ditch the failed European super state. 

In reply to by Belrev

Sonny Brakes Fri, 02/23/2018 - 14:52 Permalink

I'd like an explanation for why interest rates were so bloody high in the 80s and 90s and why we're able to have such low-interest rates in the 00s and 10s?

Gadocat Belrev Fri, 02/23/2018 - 15:06 Permalink

Ah, no.

Treasury yields are determined through supply and demand.

The bonds are, in the beginning, sold at auction by the Treasury Department. It sets a fixed face value and interest rate. If there is a lot of demand, the bond will go to the highest bidder at a price above the face value. This lowers the yield.

If yield is rising, this is an indication that there is lower demand, or higher supply, or both.  We're in the both boat.

In reply to by Belrev

alangreedspank Sonny Brakes Fri, 02/23/2018 - 15:01 Permalink

For whatever my explanation is worth, I'd say early 80s was the start of the consumer credit culture. It became OK to use credit cards for just about anything, and having a mortgage was a badge of honor when just two decades prior, you were a pariah if you had one. You'd keep it quiet... So high demand for credit, higher rates (price).

Now that boomers are retiring and spending less and less as 10,000 of them turn 65 everyday, their peak spending of their 40s is far in the rear view mirror.

Less demand for credit by the richest of the generations and coupled with them parking their wealth in bonds for income, you get a downward pressure on rates.

Of course, you've got Fed QE fuckery but that's slowly being taken away for the moment.
 

In reply to by Sonny Brakes

KenilworthCookie alangreedspank Fri, 02/23/2018 - 16:23 Permalink

But in the early 80's Banks held mortgages to maturity and held Treasury Notes as good collateral seeing the yield was fair and the interest rate around 7 or 8 % But now they pass and repackage mortgages like hookers at an orgy. Gen Y and Z however are picking up the spending slack that the boomers are cutting back on.Hell,there is always a younger crowd going out to eat in some hipster place overpaying for food and using the plastic to do it with.   

In reply to by alangreedspank