The 10-year has a 2-handle

Good morning.  I took a little break last week to spend some time with my family.  (That is, I walked up the stairs from my parents’ basement where I live.)

The 10-year Treasury yield has broken through resistance at π percent and is approaching e. The Fed’s historical data only goes back to 1962. Bloomberg says the yield “touched 2.78 percent in 1955 as measured on a monthly basis”, but I do not know where they found those data.

The 30-year Treasury yields 3.31 percent. Who is making 30-year loans to the U.S. government at 3.3% interest? Someone who isn’t much worried about inflation, apparently.

I remember when the 10-year fell through 4 percent a year ago, and that looked scary. I sure hope the market is wrong on this one.

That Hugh Hendry guy is buying U.K. debt… from World War I.

The gilts, known as perpetuals because they have no maturity date, have a coupon of 3.5 percent compared with the U.K.’s 4.5 percent inflation rate. Investors hold about 1.9 billion pounds ($2.9 billion) of the securities that still pay interest 90 years after the end of the Great War, according to the U.K.’s Debt Management Office.

If the bond market matters to you — and trust me, it does — then John Jansen’s blog is mandatory reading.  Just skip the bits that go over your head; that is what I do.  Short-term Treasury yields are now an afterthought because they are essentially zero.  As he says in today’s opening comments:

Is there a solid reason for the drop in bond yields?

The answer is a resounding yes.

Economic data released overnight paint a dismal picture and portray a global economy sinking deeper into recession.

Bond yields presage the near term direction of the economy and as I indicated earlier they are plummeting.

I did not note the bill market. For the record the one month T bill trades around a single basis point and the three month bill trades around five basis points. In a healthy economy those yields would be significantly higher.

5 comments to The 10-year has a 2-handle

  • Will you post your theory? Even if the economic outlook is bad, why aren’t bond investors worried that the fed gov’t will simply keep issuing more debt as part of a series of stimulus and bailout packages? What’s to stop the gov’t from doing this until we have inflation and/or faith in the risk-free nature of Treasuries is reduced?

  • I wish I had a theory. There are just too many instruments, institutional investors, sovereign wealth funds, central banks… I am just smart enough to understand how little I understand.

    I mean, yes, it seems to me that with a Democratic Congress and President and someone like Bernanke at the Fed, there is just no way they will allow a deflationary depression; they will destroy the currency first. I am actually considering making a large-ish bet along these lines… But I am in no rush.

  • fratris filia nullius

    Changed my name for you, nifty eh? Now quick! Delete the post so no one finds out your “secret identity”.

  • Bond Girl

    You might like the blog Accrued Interest too, if you haven’t checked it out yet.

    I don’t think this is a just a flight-to-quality movement.

  • Bond Girl —

    If not flight-to-quality, then what?

    Efficient markets? :-)

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