Saturday, August 1, 2020

2, 5, 10 and 30-Year Treasury Yields Daily Charts; 2 and 5-Year Yields at All-Time Record Lows

The Federal Reserve keeps the short duration Treasury yields anchored and drifting lower with their easy money policies. The 2-year and 5-year yields are at all-time record lows. The 2-year is down to 0.11%, only 11 basis points, and the 5-year drops to 0.21%. Negative rates may be on tap this month. The Fed said they do not want to go down the negative yield path.

The 10-year yield is near a record low but not yet, dropping to double-nickel's, 0.55%. The 30-year yield is not the popular girl at the dance. Everybody is dancing and fawning over the 2's and 5's, and now that the evening is moving on, and the Fed booze is flowing like water, the 10's are starting to look good. It may take a few more drinks for the 30-year to look attractive.

The move lower in the 30-year yield typically indicates that economic growth is stalling and inflation is tame. The non-stop 11 years plus of Federal Reserve intervention in markets creates the ongoing bid in Treasuries. As worries increase over the coronavirus and economy, investors seek perceived safety in bonds (so prices climb which sends yields lower). Future growth may be cut off at the knees due to COVID-19. The huge contraction in Q2 (April, May, June) GDP at -32.9% (annualized; it is about -8% or -9% on quarter) crushes Treasury yields lower.

A year ago, it was a big deal that the 30-year yield dropped below 2%. Now analysts, traders and strategists are wondering which will print first; 1% on the 30-year (moving lower signaling more disinflation and deflation) or 1% on the 10-year (moving higher signaling the likely end to the 3-decade bond rally and the very beginnings of inflation).

US Treasury yields are; 2-year 0.11%, 5-year 0.21%, 10-year 0.55%, 30-year 1.20%. The 2-10 spread is 44 bips nowhere near inversion (0 and negative bips) like last August. The 5-30 spread is 99 bips. 

The Federal Reserve, led by Pope Powell, is all-in with their Keynesian games. In an effort to reassure investors that the Fed will serve as a backstop to markets, Powell keeps saying, paraphrasing, that the Fed is nowhere near raising rates and that additional money-printing will occur at any sign of weakness.  Hence, Treasuries remain well bid. The end game may be upon us. There is not enough money to save the economy and all Americans and the serious Fall outbreak of COVID-19 remains ahead. When stocks fall the next time, will there be any confidence remaining that the Federal Reserve can save the day? When faith in the central banks is lost, all is lost. In America's crony capitalism system, markets only exist by the graces of the Federal Reserve. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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