Citi: "The 30Y Treasury Is The Cheapest Asset Class On The Planet"

Ahead of the Easter Weekend, in lieu of its traditional rates weekly report, Citi's European Rates team headed by Harvinder Sian released a list of 15 non-consensus thoughts among which such ideas as: the 10yr BTP/Bund spread drops sub-100bp, Bunds may rally on ECB tightening, and that Neutral rates really are that low ("Why are such low rates restrictive? Because we have borrowed demand from the future and to prevent a reckoning when tomorrow arrives requires ever lower real rates").

But the one that caught our attention the most was Sian's take on the long-end of the curve, the 30Y Treasury, which in stark contrast to the vast majority of the street, he sees as not only outperforming, but is now the "cheapest asset class on the plant" for one simple reason, in fact the same reason why have said for years is why the Fed simply can not normalize: "The consensus that we are set to break multi-decade bull channels does not work because higher rates crash risk assets and then the economy."

That's really all there is to it.

The extremely controversial, if brief and to the point, take from Citi:

We took down our 30yr Treasury yield forecast for end-2018 to 2.85% because the Fed is into restrictive territory. Long end yields typically peak before the Fed. The consensus that we are set to break multi-decade bull channels does not work because higher rates crash risk assets and then the economy. With $ slope pointing to recession risks we like getting paid a coupon for an asset that should return 30%+, when the Fed initiates yield curve control on 10yr at say 1.25%.

And here's another, more dramatic, way of visualizing why the Fed is stuck, this time at the 10Y level.


Mr_Potatohead Pinto Currency Sun, 04/01/2018 - 16:12 Permalink

The Fed can crash the market any time it chooses.  It also can keep the price of treasuries anywhere it wants by swapping freshly generated USD for those ultra-safe "assets".  Even if China dumps all of its holdings, enough freshly created USD can buy it all without an appreciable drop in price.  Ain't it great when you can run an ever-expanding balance sheet using a worthless asset to balance a similarly worthless liability that then gets distributed to the masses?

In reply to by Pinto Currency

Theosebes Goodfellow Mr_Potatohead Sun, 04/01/2018 - 16:34 Permalink

~" Ain't it great when you can run an ever-expanding balance sheet using a worthless asset to balance a similarly worthless liability that then gets distributed to the masses?"~

Wait a minute, Potty. If I didn't know any better I'd think that a rather cynical statement. Whoops! Hold on. I don't know any better...

In the end, either you hold Money, or you don't. It's that simple. As I am oft fond to ask everyone...

What's in your safe?


In reply to by Mr_Potatohead

Mr_Potatohead loveyajimbo Sun, 04/01/2018 - 17:25 Permalink

It's what they did because they had no other choice. (Sound familiar?) And it worked, until it didn't.  Then things got ugly for a while before the world went to war.  The old empires died while a new empire emerged with manufacturing muscle, lots of natural resources, a gold-backed currency, and a growing consumer class.  But this time is different, right?

In reply to by loveyajimbo

Rise Of The Machines Sun, 04/01/2018 - 15:28 Permalink

I've seen a lot strange things that couldn't happen on the markets in the last 30 years and this will be no different. When somebody tells you that something can't happen on the markets, run for your life! Rise Of The Machines Sun, 04/01/2018 - 15:51 Permalink

I agree.  I've been selling some PM's at these levels and buying 5 yr Treasuries.  They yield over 2 1/2% and are exempt from state income tax.  Also VERY liquid for when things go tits-up which they will -eventually.

Don't get me wrong, I still like PM's and keep a position, but they could crash again when everybody panics.  Who the f_ck knows, but I like having options. 

Also, sick of checking Kitco every ten minutes.  Having all your eggs in one basket makes one keep an eagle eye on that basket.

In reply to by Rise Of The Machines

InnVestuhrr Sun, 04/01/2018 - 16:36 Permalink

Very smart move for a reformed, or at at least open-minded, shiny-shit cultist.

I recommend that now you should start researching swing trading treasuries cuz you can earn big profits on rate swings, and the worst that can happen to you is that you get stuck owning the most liquid asset returning almost 3% annually.

The most I earned swing trading treasuries was over $800K in 2016 when Yellen started the "return to normal" and the treasury investors bought in like a tsunami. The list of capital gains transactions attached to my IRS return was about 1/3in thick, printed 2-sided.

In reply to by

Albertarocks Sun, 04/01/2018 - 15:40 Permalink

Citi has never heard of silver I guess.  And YES, silver IS the cheapest commodity on the planet, by a long shot.  It's the only commodity in the entire solar system that is still cheaper than it was 37 years ago.  Are bonds?

But if you are still convinced that bonds are such an incredible fucking bargain, by all means fill your boat up to the gunnels with 'em.  Happy sailing.

Albertarocks wisehiney Sun, 04/01/2018 - 18:03 Permalink

I use mining companies for that and it has worked beautifully.  Admittedly, over the past 16 months it has been hard to grab gains, but easy to tweak the account by adjusting it to gather up cheap, cheap shares in outstanding companies.  For example, if I'm holding 25 companies, 20 of which are going nowhere, 2 of them rise 10% and 3 of them drop 30%, I'll sell something and buy up those bargain shares.  My account has so much freakin' torque right now that any little burst in PMs will be extremely lucrative.

In reply to by wisehiney

taketheredpill Sun, 04/01/2018 - 15:49 Permalink

Big Treasury rally coming.  It will carry on for first couple of rate cuts.  BUT as soon as market understands that MASSIVE QE is coming, bond rally and $ rally are over.


Fed only has one trick left. And when they do it again they will go ALL IN.



MusicIsYou Sun, 04/01/2018 - 16:44 Permalink

The 30Y treasury is the cheapest asset because the U.S isn't going to exist in 30 years to pay them. I mean not only are males becoming sissy girls, but the planet is dying. You people who think you have a future make me laugh.

Mr_Potatohead MusicIsYou Sun, 04/01/2018 - 18:49 Permalink

You're being fatalistic.  The human race is remarkably robust.  After the dollar dies, and the US empire declines, and the wars and reset are over, there still will be people. They will reproduce, and life will carry on.

I don't believe that global thermonuclear war is in the cards.  It's far smarter to create EMPs, which would cause any country to implode quite quickly without contaminating the natural resources that are so desirable.  An even better approach is to release a bioengineered virus at the same time to selectively wipe out the "undesirables" (esp. white heterosexual males, NRA members, and libertarians), as well as anybody else who has not been immunized ahead of time. FEMA camps are the perfect environment for a pandemic. Whatever the case, they'll be lots of the right people left over to carry on and many fewer to compete for the resources. Don't be so pessimistic about the future.

In reply to by MusicIsYou

MrSteve silverer Mon, 04/02/2018 - 01:29 Permalink

For several perfectly good reasons, bonds are known as guaranteed certificates of confiscation. Bonds are trading devices, not wealth preservers. Check your Confederate States of America bond values for the big picture on value printed by a government. China is now trading its fiat for oil and claiming a gold backing. I am waiting for the first gold conversion to be public and then repeated at length.

The Weimar mark and stock market climbed higher together and then crashed together, a parallel structure reflecting the hyperinflation / devaluation of the currency. Agricultural land and gold held their value while everything else depending on market pricing, including labor, collapsed.

Today we are seeing the South American Syndrome, debt and social collapse a la Argentina and now with Venezuela at bat with Brazil and Mexico on deck.

We are very far past my personal depression is now indicator: three different pictures of farmers dumping milk. When prices are too low to pay for trucking milk to the markets, the next over-supply is ground beef and cheese in the fall, the end of pasture cow feeding. Today, FX costs are killing foreign bond buying for U$Ts, so the FED will do a BOJ and buy up any slack in Treasury auctions. Yet again monetizing the debt which is seen as the cure but not the cause by all the Greater Fools.

Look up the purchasing power loss in the U$D since Y2K to see how much real inflation has devalued the dollar in 17.25 years.

In reply to by silverer