I Expect New Record Low Long Bond Yield

Every attempt of the 30-Year long bond to break out of a decades-long downtrend fails. At the end of October, the long bond yield was 2.96%. Six days into November, it's back at 2.80%. Meanwhile, short-term rates continue to rise. We are a recession away from a new record low yield on the long bond.

Despite all the economic cheerleading about the allegedly strengthening economy, I see things differently. Job growth is shrinking. Average the last two months to smooth out the hurricanes and you get growth job growth of 114,000. For now, it's still positive.

Hooray, autos rebounded. However, 100% of that rebound is due to hurricane replacement. It won't last.

Rental Vacancies Are Rising. What will that do to new apartment construction?

What growth we have is due to a diminishing savings rate . That's another hurricane aspect that won't last.

What Do You Believe?

The stock market and the 30-Year long bond yield are at odds. I believe the long bond. If the economy was truly strengthening, the yield on the long bond would not be acting like it is.

We are one recession away from a new record low yield on the long bond, and it's coming.

Mike "Mish" Shedlock

Who do you think will want to hold 30 yr govt paper as the world learns the world's govt's have no clothes? - How about the best-run government bond fund in the world - Hoisington - Lacy Hunt

It's merely a question of which dominoes topple first.

The dollar and US Treasuries will be one of the "last men standing" before they too, topple.

It's all in the timing.

Treasuries, along with precious metals, are one of the few remaining asset classes that is negatively correlated to risk assets like stocks, REITs, high yield bonds, etc. If we ever have a prolonged risk off move or a recession, there will be an avalanche of money, both foreign and domestic, trying to get into one of these rare safe harbors. I think yields will ultimately go negative far out onto the Treasury yield curve in this scenario, perhaps even to the 10 year note.

I agree with Misch. As long as the government continues to run huge deficits, the market will be flooded with treasury bonds and printed money. All that printed/created money creates lower interest rates. I expect stocks to continue to rally and rates to remain low given the comparable yields on bonds and stocks. At least until the fed ceases to be a market for treasury securities. If that happens, all bets are off.

Mish - Comments on the Great QE unwind that has just begun? It is about a month old now. And the effects on Long Term bonds (say 6 months from now when it really gets underway)?

Regarding your comments on slowing job growth: it's not about a lack of job creation - it's about a lack of skilled workers to fill the many jobs that sit empty. The US economy is actually doing just fine. To grow even faster the US doesn't need tax cuts or other stimulus, it only needs more skilled workers and more free trade agreements so that US companies have places to sell their growing production.

Hoisington Investment Management Company focuses on long-term investment strategies that utilize only U.S. Treasury securities. With customers like pensions and insurance companies that are obligated to hold a large portion in treasuries, I'm sure they have no reason to talk their book.

I have not seen any data on significant rises in apartment vacancy rates. And the only area it is rising at all is the Class A high end apartments (which is all they have built this cycle). There is still a huge issue with enough affordable housing in the U.S. But developers cannot build affordable housing and make it pencil with land costs + regulation + labor costs. So I do not see rental vacancies going up much. But if they built too much Class A and can't pencil building Class B or C, I guess apartment construction could fall. But single-family home construction will probably pick up as millennials form new households.

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