30-yr Treasury Yield: “The Economy Is Collapsing”


We know that inflation is running a lot higher this year – true inflation, that is, and not the phony Government CPI.  Thus, low inflation would not explain the 80 basis point drop in long bond yields since January 1st.   “Flight to safety” would flow either into the very short end of the yield curve or into gold or under the mattress.   Therefore, it is apparent to me that the Treasury bond market is starting to price in economic armegeddon.   This will mean deflation of asset prices (stocks, homes, crappy Wall Street concoctions) but not necessarily deflation of necessities.

With retail sales, auto sales,  and home sales all collapsing, the only explanation left is that the Treasury bond market is pricing in a severe economic downturn.    This would explain also why high yield bond spreads have widened considerably over the past month.  The big drop in oil prices this week would further affirm this.

For anyone who is reading this and has invested in my Easy Trade Idea from the end of July, I used to today’s low volume pullback in the stock to add to our position in the fund by shorting slightly in the money puts that expire tomorrow.  If the price closes below the strike tomorrow, we will take delivery of more shares with a cost-basis reduced by the amount of put premium we collected today.

7 thoughts on “30-yr Treasury Yield: “The Economy Is Collapsing”

  1. It’s nuts isn’t it? The real interest rate is going to get so negative that they may as well color those bonds bloodbath red.

    Some years ago the US changed its regulations, compelling institutions and funds with long dated obligations, like pension funds and insurance companies for example, to ‘match duration’ in their investments with those longer term obligations.

    This caused institutional buying of the longer dated Treasuries. I don’t recall if this included longer dated corporates or just ‘riskless’ investments.

    And don’t forget the Fed is still buying new, and rolling over its investments in the longer end of the curve, despite the ‘taper’ of QE. But I haven’t looked at the specific portfolio lately.

    So it might not be Armageddon so much as just the downward spiral of centrally planned dumbness.

    1. ACES!

      It’s both – great color. A big part of what I did when I was post-college grunt at Goldman was put together the presentations Goldman pimps would use to sell duration-matching portfolio re-balancing deals to big pension funds.

  2. Yep.

    Some roads you shouldn’t go down. Because maps used to say, ‘There be dragons here.’ Now they don’t. But that don’t mean the dragons aren’t there.

  3. I’m in disagreement with you on energy prices. I think they have been manipulated down to “punish” Putin. They finally broke support at 96-97 today.

    You said it: “This will mean deflation of asset prices (stocks, homes, crappy Wall Street concoctions) but not necessarily deflation of necessities.” Last time I checked, oil was a neccesity…

    How do you think the Saudi like us now?

    1. Had that discussion with someone earlier. It’s possible but if they are pushing down oil futures for that purpose, it can’t last very long. It would be interesting to know if spot oil in eastern Europe is in backwardation. The difference between oil and gold is that buyers of futures want delivery to use the oil And oil is depletable. Most paper buyers of gold never take delivery. If oil users are willing pay more than the futures price, the situation arbs out quickly.

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