To Start the New Week: They Keep Saying Treasury Yields Will Rise...Really?
Old saying: A picture is worth a thousand words. And so we present, for your viewing pleasure, this illustrative chart of the 10-year treasury yield, dating back to 1985.
Since before the financial crisis began to unfold in 2007, we have heard that the bond bull market that began in 1980 was over. Yields will rise...really, they will. Every year since, the same song. Early on, we dutifully shorted the long treasury. We held on until we began to notice that, despite all the seemingly "rational" arguments explaining why treasury yields had to rise, they simply didn't. Fortunately, we gave up on our short position, and have since been long at times - especially lately.
The consistent failure of treasury yields to rise hasn't silenced the anti-treasury cheerleaders. (Query: Can you be a cheerleader when you're against something?) One analyst whom we considered fairly intelligent, and who had made some excellent calls based on his analysis, guaranteed that treasury yields would rise, and went so far as to say he would eat his hat if they did not. Naturally, he was wrong. I don't know if he ever ate his hat, but he should have. Maybe he learned a lesson, as we learned ours. What is that lesson?
Well, there's always the simple, generic one first spouted by Keynes: "Markets can stay irrational longer than you can stay solvent." But that's not really applicable here. For it to be applicable, one has to accept that the low rates are irrational. And to that, we simply would ask: Based on what? Rather, it seems more likely that US treasuries remain the one safe haven that large investors turn to in trying times. Where else will they go with their money if they believe stocks are tanking, or commodities prices are collapsing? While some continue to call gold a "haven," we're not so sure that it's really as much of a haven as treasuries, if only for the reason that the treasury market is simply gargantuan compared to gold - or silver for that matter. That's not to say that at some point there isn't an "Aha!" moment when investors - even the big guys - lose all confidence in fiat money, whether of the US dollar variety, or the dozens of others printed by central banks around the world. It's just that there's no particular evidence that that moment has arrived.
In fact, when you look at the chart above, you see that the channel containing the price action has narrowed since 2008. While yields may "feel" more volatile, they're actually less so, staying within a more constricted range. If you can see some evidence in the chart above that tells us that "yields are definitely going up - any idiot can see that," please let us know.
And if you're thinking that yields can't really go much lower, since they're approaching "zero" at some point, we only remind you of a concept that has lately become more viable, even if more crazy: "negative yields." We've mentioned it before, and we suspect we may be talking about this more in the future. At least that's the way reality presents itself to a reasonable mind so far.
Link to original chart:
The consistent failure of treasury yields to rise hasn't silenced the anti-treasury cheerleaders. (Query: Can you be a cheerleader when you're against something?) One analyst whom we considered fairly intelligent, and who had made some excellent calls based on his analysis, guaranteed that treasury yields would rise, and went so far as to say he would eat his hat if they did not. Naturally, he was wrong. I don't know if he ever ate his hat, but he should have. Maybe he learned a lesson, as we learned ours. What is that lesson?
Well, there's always the simple, generic one first spouted by Keynes: "Markets can stay irrational longer than you can stay solvent." But that's not really applicable here. For it to be applicable, one has to accept that the low rates are irrational. And to that, we simply would ask: Based on what? Rather, it seems more likely that US treasuries remain the one safe haven that large investors turn to in trying times. Where else will they go with their money if they believe stocks are tanking, or commodities prices are collapsing? While some continue to call gold a "haven," we're not so sure that it's really as much of a haven as treasuries, if only for the reason that the treasury market is simply gargantuan compared to gold - or silver for that matter. That's not to say that at some point there isn't an "Aha!" moment when investors - even the big guys - lose all confidence in fiat money, whether of the US dollar variety, or the dozens of others printed by central banks around the world. It's just that there's no particular evidence that that moment has arrived.
In fact, when you look at the chart above, you see that the channel containing the price action has narrowed since 2008. While yields may "feel" more volatile, they're actually less so, staying within a more constricted range. If you can see some evidence in the chart above that tells us that "yields are definitely going up - any idiot can see that," please let us know.
And if you're thinking that yields can't really go much lower, since they're approaching "zero" at some point, we only remind you of a concept that has lately become more viable, even if more crazy: "negative yields." We've mentioned it before, and we suspect we may be talking about this more in the future. At least that's the way reality presents itself to a reasonable mind so far.
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