The Fed is heading for another catastrophe - page 3
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Treasuries Post Their Worst Weekly Decline in Almost Two Months
European debt markets took a holiday and still dragged Treasuries lower.
The worst week for U.S. 10-year notes in almost two months got even bleaker as a rout in European bonds continued to diminish investor appetite for relatively higher U.S. yields. The notes also extended an April decline after a report showed U.S. consumer confidence rose last month.
“This week was a bit of trying to move away from the relative-value trade, saying the U.S. is cheaper than Europe, and moving toward the fundamental-value trade,” said Tyler Tucci, a U.S. government-bond strategist in Stamford, Connecticut, at Royal Bank of Scotland Plc’s RBS Securities unit, one of 22 primary dealers that trade with the Federal Reserve. “Given the economic fundamentals, what is the appropriate yield?”
Treasury 10-year yields rose eight basis points, or 0.08 percentage point, to 2.11 percent as of 5 p.m. New York time. It touched 2.12 percent, the highest since March 13, based on Bloomberg Bond Trader data. The benchmark 2 percent note due in February 2025 fell 23/32, or $7.19 per $1,000 face amount, to 99.
European government-bond markets were closed Friday for the May Day holiday.
Weekly Jump
Ten-year yields climbed 20 basis points this week, the most since the week ending March 6, and are up from 1.92 percent at the start of April.
U.S. debt extended losses after the University of Michigan said Friday that its final consumer-confidence index for April increased to 95.9 from 93 in March. The median projection in a Bloomberg survey of economists was for 96.
That followed a series of weak first-quarter economic readings that the Fed this week blamed on “transitory” factors including brutal winter weather in much of the U.S. Fed Chair Janet Yellen and her colleagues reiterated in a statement on April 29 after a two-day meeting that they believe growth will pick up to a “moderate pace.”
“These past couple of weeks have been really difficult -- attaching these reports to any price action has been nearly impossible,” said Michael Lorizio, senior trader with Manulife Asset Management in Boston. “We’re seeing a continuation of the trend that’s existed all week.”
Euro-area debt started selling off early in the week and reached a peak on April 29, when 55 billion euros ($62 billion) was wiped off the value of the region’s government bonds on the day.
The extra yield that investors get for holding Treasury 10-year notes instead of similar-maturity German bunds narrowed to 167 basis points on Thursday, the least on a closing basis since April 3.
“A lot of this move is momentum-driven and people are going to see how far they can push it,” said Stanley Sun, an interest-rate strategist at primary dealer Nomura Holdings Inc. “There are momentum players who will jump on this train regardless of the fundamental picture.”
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Quantitative Easing appeals to economists with no grasp of history
There is one thing riskier than investing in a free market: investing in a rigged market when you think the central bank has your back.
At some point, the free market returns with a vengeance, like a coiled spring made out of pure risk. That time may be coming soon.
Last week, German government 10-year bond yields suddenly spiked from just 8 basis points to 37 basis points.
Now, a 29 basis point (0.29%) jump may not seem like much, but with yields so slender, a move of that magnitude is easily enough to put a few leveraged funds out of business.
Bonds have never been more expensive in human history, and yet their supply has never been higher.
10-year US Treasuries yield just 2.1%. 10-year UK Gilts yield 1.84%. 10-year German government bonds now yield 0.37%. And that bug-in-search-of-a-windshield 10-year Japanese bonds yield 0.32%.
Bloomberg’s William Pesek highlights the tortured logic plaguing Bank of Japan Governor Haruhiko Kuroda as he attempts to escape from the corner of the bond market he has painted himself into:
“[Japan] defies the basic tenets of economics for the nation with the largest total debt, largest ratio of geriatrics and low rates of immigration to have lower bond yields than countries like Singapore, Sweden or Switzerland.”
When one of the world’s government bond markets finally blows up (Japan still looks like the primary candidate, but stranger things have happened), economists will scratch their heads and wonder where it all went wrong.
Wiser souls will wonder how economists could ever have thought that money printing was the answer to anything.
In the introduction Schuettinger and Butler’s outstanding book Forty Centuries of Wage and Price Controls,” David Meiselman writes:
“Despite the clear lessons of history, many governments and public officials still hold the erroneous belief that price controls can and do control inflation. They thereby pursue monetary and fiscal policies that cause inflation, convinced that the inevitable cannot happen.
“When the inevitable does happen, public policy fails and hopes are dashed. Blunders mount, and faith in governments and government officials whose policies caused the mess declines. Political and economic freedoms are impaired and general civility suffers.”
Quantitative easing is a squalid little lie. It appeals to economists with no grasp of history. It pretends that too much debt can be simply resolved through futile attempts at price controls and money printing.
The practical outcome of QE is that it turns the bond market into a no-go area for any rational investor.
We are now in the terminal stages of QE, during which the practical limitations of this fatuous and discredited policy are being revealed.
When you devalue money and distort the supposed risk-free rate, you devalue every aspect of the capital structure, and of society itself.
Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.
If you liked this post, please click the box below. You can watch a compelling video you’ll find very interesting.
Will you be prepared when everything we take for granted changes overnight?
Just think about this for a couple of minutes. What if the U.S. Dollar wasn’t the world’s reserve currency? Ponder that… what if…
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...in normal economy...what people earn must fluctuate constantly with the income of businesses they are working for...therefore eliminating possibility of mortgage landing or "fixed income" entitlements...That is CAPITALISM...the only financial and social structure that works...(for some nations)
we are not living in capitalism any more
hiding the inflation in order to keep the labor cost cheap and making it cheaper is slavery, not capitalism
we are not living in capitalism any more hiding the inflation in order to keep the labor cost cheap and making it cheaper is slavery, not capitalism
it's worst than slavery...financially slaves were better off
it's worst than slavery...financially slaves were better off
Not just financially - slaves had dreams. Now the slaves are brainwashed zombies
Not just financially - slaves had dreams. Now the slaves are brainwashed zombies
...don't know about dreams...but I have some reservation about my gorgeous Mistress having her way with me in her bedroom, whenever she wants to...
Analyst Warns On Banks
Richard Bove is the bank equity analyst at Rafferty Capital Markets. He is a longtime friend and is as distinguished and seasoned a bank analyst as anyone I know.
This morning, he put out a research note that gave me pause. We thank Dick for permission to share this with our readers:At Cumberland, we are currently over weight the financial sector, including banks. We shall see how this warning by Dick Bove plays out. That said, I have followed Dick Bove’s research work for decades and respect this warning. It is coming from a very seasoned and experienced professional.
David R. Kotok, Chairman and Chief Investment Officer
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FED declared the war (as they were ordered). Now they don't like the outcome? Ridiculous