Let’s talk 10 yr treasuries

[SD Realtor]

As you guys know… one of my favorite topics…

Any thoughts?

My read is that perhaps we saw the lowest yield we will see in a long time a few weeks ago. For a brief moment that sucker was way down there but over the past couple weeks it has been on the rise again.

One thing for sure, and I believe Josh you have pointed this out repeatedly, and that is even with the conforming limit cielings moved up, if the 10 year doesn’t want to play nice, there is not much anybody can do. Friday the 10 year closed at 3.78 which by historical standards is seriously low. Looking at the 5 year chart back in 03 the 10 year bottomed out in June near 3.2 I think. By August that sucker was a 4.5. 130 basis points in the blink of an eye by any standards. Will we see that? I doubt it. Yet we were at about 5.2 less then a year ago. Holy canole that is quite a move down.

Some people would think it is time to load up on a rising rates fund. Me, I get burned on stuff like that to much. I do know, that if the bond market starts to tank, it will put a hurtin on the already crippled home market. It will also hurt people who are indeed thinking of buying. It may be time to adjust your spreadsheets people.

I will be interested to hear what saving bond traders think.

[equalizer]

Never underestimate the central banks, the sovereign funds, pension funds in tiny Finnish towns, etc that will do something crazy like buy 10 year with the dollar in free fall. Logic dictates that the 10 year should stay put or move up slightly with inflation, but the markets are so cooked that 10 year has better chance of going to 3.25.
I tried the rising rate fund in 2003 and got burned. Bought RRPIX when 10 year was at 3.6 and sold few years later when 10 year was at 4.5 and I lost 10%!!!!! I was right on the direction, but the damn Phds couldn’t manage the futures properly to keep exact -100% correlation.

[SD Realtor]

Equalizer I will be damned!!! I bought rrpix a few years ago and got sizzled as well. You would think the shmucks running it could simply correlate of the inverse… Agreed with what you said… I am a boob when it comes to predicting the bond market.

SD Realtor

[SD Realtor]

Equalizer I will be damned!!! I bought rrpix a few years ago and got sizzled as well. You would think the shmucks running it could simply correlate of the inverse… Agreed with what you said… I am a boob when it comes to predicting the bond market.

SD Realtor

[SD Realtor]

Equalizer I will be damned!!! I bought rrpix a few years ago and got sizzled as well. You would think the shmucks running it could simply correlate of the inverse… Agreed with what you said… I am a boob when it comes to predicting the bond market.

SD Realtor

[SD Realtor]

Equalizer I will be damned!!! I bought rrpix a few years ago and got sizzled as well. You would think the shmucks running it could simply correlate of the inverse… Agreed with what you said… I am a boob when it comes to predicting the bond market.

SD Realtor

[SD Realtor]

Equalizer I will be damned!!! I bought rrpix a few years ago and got sizzled as well. You would think the shmucks running it could simply correlate of the inverse… Agreed with what you said… I am a boob when it comes to predicting the bond market.

SD Realtor

[equalizer]

Never underestimate the central banks, the sovereign funds, pension funds in tiny Finnish towns, etc that will do something crazy like buy 10 year with the dollar in free fall. Logic dictates that the 10 year should stay put or move up slightly with inflation, but the markets are so cooked that 10 year has better chance of going to 3.25.
I tried the rising rate fund in 2003 and got burned. Bought RRPIX when 10 year was at 3.6 and sold few years later when 10 year was at 4.5 and I lost 10%!!!!! I was right on the direction, but the damn Phds couldn’t manage the futures properly to keep exact -100% correlation.

[equalizer]

Never underestimate the central banks, the sovereign funds, pension funds in tiny Finnish towns, etc that will do something crazy like buy 10 year with the dollar in free fall. Logic dictates that the 10 year should stay put or move up slightly with inflation, but the markets are so cooked that 10 year has better chance of going to 3.25.
I tried the rising rate fund in 2003 and got burned. Bought RRPIX when 10 year was at 3.6 and sold few years later when 10 year was at 4.5 and I lost 10%!!!!! I was right on the direction, but the damn Phds couldn’t manage the futures properly to keep exact -100% correlation.

[equalizer]

Never underestimate the central banks, the sovereign funds, pension funds in tiny Finnish towns, etc that will do something crazy like buy 10 year with the dollar in free fall. Logic dictates that the 10 year should stay put or move up slightly with inflation, but the markets are so cooked that 10 year has better chance of going to 3.25.
I tried the rising rate fund in 2003 and got burned. Bought RRPIX when 10 year was at 3.6 and sold few years later when 10 year was at 4.5 and I lost 10%!!!!! I was right on the direction, but the damn Phds couldn’t manage the futures properly to keep exact -100% correlation.

[equalizer]

Never underestimate the central banks, the sovereign funds, pension funds in tiny Finnish towns, etc that will do something crazy like buy 10 year with the dollar in free fall. Logic dictates that the 10 year should stay put or move up slightly with inflation, but the markets are so cooked that 10 year has better chance of going to 3.25.
I tried the rising rate fund in 2003 and got burned. Bought RRPIX when 10 year was at 3.6 and sold few years later when 10 year was at 4.5 and I lost 10%!!!!! I was right on the direction, but the damn Phds couldn’t manage the futures properly to keep exact -100% correlation.

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[SD Realtor]

Both answers are well thought out and I cannot argue either of them well not just because I am tired but because I don’t have a good argument either way and I am not as well versed in the movement of the ten year. I get brainfreeze when I try to figure out which way it will go. Thanks for providing input guys.

SD Realtor

[SD Realtor]

Both answers are well thought out and I cannot argue either of them well not just because I am tired but because I don’t have a good argument either way and I am not as well versed in the movement of the ten year. I get brainfreeze when I try to figure out which way it will go. Thanks for providing input guys.

SD Realtor

[SD Realtor]

Both answers are well thought out and I cannot argue either of them well not just because I am tired but because I don’t have a good argument either way and I am not as well versed in the movement of the ten year. I get brainfreeze when I try to figure out which way it will go. Thanks for providing input guys.

SD Realtor

[SD Realtor]

Both answers are well thought out and I cannot argue either of them well not just because I am tired but because I don’t have a good argument either way and I am not as well versed in the movement of the ten year. I get brainfreeze when I try to figure out which way it will go. Thanks for providing input guys.

SD Realtor

[SD Realtor]

Both answers are well thought out and I cannot argue either of them well not just because I am tired but because I don’t have a good argument either way and I am not as well versed in the movement of the ten year. I get brainfreeze when I try to figure out which way it will go. Thanks for providing input guys.

SD Realtor

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

“Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.”

I’m saying this:

I believe that the 10 year may stay at these levels or possibly go lower for a while. At the same time USD may start appreciating and it will make US treasuries even more attractive for private investors both here and abroad.

Sooner or later stock market will turn around, I can’t predict what happens next.

Also 10 year at 1.5% won’t be any good for housing if there are some drastic changes in mortgage markets e.g. Fannie Mae goes bankrupt, but if that happens, housing will be the least of our problems.

[Eugene]

“Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.”

I’m saying this:

I believe that the 10 year may stay at these levels or possibly go lower for a while. At the same time USD may start appreciating and it will make US treasuries even more attractive for private investors both here and abroad.

Sooner or later stock market will turn around, I can’t predict what happens next.

Also 10 year at 1.5% won’t be any good for housing if there are some drastic changes in mortgage markets e.g. Fannie Mae goes bankrupt, but if that happens, housing will be the least of our problems.

[Eugene]

“Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.”

I’m saying this:

I believe that the 10 year may stay at these levels or possibly go lower for a while. At the same time USD may start appreciating and it will make US treasuries even more attractive for private investors both here and abroad.

Sooner or later stock market will turn around, I can’t predict what happens next.

Also 10 year at 1.5% won’t be any good for housing if there are some drastic changes in mortgage markets e.g. Fannie Mae goes bankrupt, but if that happens, housing will be the least of our problems.

[Eugene]

“Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.”

I’m saying this:

I believe that the 10 year may stay at these levels or possibly go lower for a while. At the same time USD may start appreciating and it will make US treasuries even more attractive for private investors both here and abroad.

Sooner or later stock market will turn around, I can’t predict what happens next.

Also 10 year at 1.5% won’t be any good for housing if there are some drastic changes in mortgage markets e.g. Fannie Mae goes bankrupt, but if that happens, housing will be the least of our problems.

[Eugene]

“Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.”

I’m saying this:

I believe that the 10 year may stay at these levels or possibly go lower for a while. At the same time USD may start appreciating and it will make US treasuries even more attractive for private investors both here and abroad.

Sooner or later stock market will turn around, I can’t predict what happens next.

Also 10 year at 1.5% won’t be any good for housing if there are some drastic changes in mortgage markets e.g. Fannie Mae goes bankrupt, but if that happens, housing will be the least of our problems.

[gdcox]

Graham

The ten year is too low. There has been a flight to safety worldwide that has pushed yields down abnormally .

[davelj]

The 10-year treasury has historically mean reverted to 250 bps real return and about a 300 bps inflation premium. (So, it’s averaged about 5.5% over the last 80 years.) The current on-the-run 10-year TIPS are yielding about 1.50% while the current 10-year nominal yield is about 3.80%. So, the market is pricing in that 10-year treasury buyers will be perfectly happy for the next 10 years with (1) a 1.50% real return, and assuming that (2) inflation will average 2.30% annually over the period. Neither of these seem like particularly good bets. But it could be a while before the prices mean revert.

[Chris Scoreboard Johnston]

I hate to disppoint the post about small investors moving the prices of this instrument. However, as someone who routinely commits to trades of seven figures and never sees the market move even a tick on the fills, I have to tell you that small investors have no influence at all in this market. Even a Goldman Sachs can only move prices for a few seconds so make no mistake about it, those models you refer to are exactly what determine where this market goes.

The seasonal bias heavily favors a upward move in yields into June, followed by a downward move through the end of the year from there. This has been particularly prominent during election years. The logic behind that I think is obvious, but that has what has historically occurred. The commercials are kind of in the middle here as far as positioning goes, so they are of no help at the moment in terms of guessing about direction. As a result, my guess is higher rates for the next few months, followed by a decline from there for the balance of the year.

I will be looking to put a long postion on in June and hold it through years end, unless something has changed dramatically leading up to that date.

[HereWeGo]

That would have been a fine trade in 2007, no doubt about it.

Update:

The 10-year is getting whacked today, the yield is at 3.9 and climbing. 30-year mortgage rates are higher today (5.82) than 1 year ago today (5.77,) according to Bloomberg.

Across the board, the inflation trade is en fuego. I’m not sure about that. Commodities usually break last, but they break hard.

[HereWeGo]

That would have been a fine trade in 2007, no doubt about it.

Update:

The 10-year is getting whacked today, the yield is at 3.9 and climbing. 30-year mortgage rates are higher today (5.82) than 1 year ago today (5.77,) according to Bloomberg.

Across the board, the inflation trade is en fuego. I’m not sure about that. Commodities usually break last, but they break hard.

[HereWeGo]

That would have been a fine trade in 2007, no doubt about it.

Update:

The 10-year is getting whacked today, the yield is at 3.9 and climbing. 30-year mortgage rates are higher today (5.82) than 1 year ago today (5.77,) according to Bloomberg.

Across the board, the inflation trade is en fuego. I’m not sure about that. Commodities usually break last, but they break hard.

[HereWeGo]

That would have been a fine trade in 2007, no doubt about it.

Update:

The 10-year is getting whacked today, the yield is at 3.9 and climbing. 30-year mortgage rates are higher today (5.82) than 1 year ago today (5.77,) according to Bloomberg.

Across the board, the inflation trade is en fuego. I’m not sure about that. Commodities usually break last, but they break hard.

[HereWeGo]

That would have been a fine trade in 2007, no doubt about it.

Update:

The 10-year is getting whacked today, the yield is at 3.9 and climbing. 30-year mortgage rates are higher today (5.82) than 1 year ago today (5.77,) according to Bloomberg.

Across the board, the inflation trade is en fuego. I’m not sure about that. Commodities usually break last, but they break hard.

[Chris Scoreboard Johnston]

I hate to disppoint the post about small investors moving the prices of this instrument. However, as someone who routinely commits to trades of seven figures and never sees the market move even a tick on the fills, I have to tell you that small investors have no influence at all in this market. Even a Goldman Sachs can only move prices for a few seconds so make no mistake about it, those models you refer to are exactly what determine where this market goes.

The seasonal bias heavily favors a upward move in yields into June, followed by a downward move through the end of the year from there. This has been particularly prominent during election years. The logic behind that I think is obvious, but that has what has historically occurred. The commercials are kind of in the middle here as far as positioning goes, so they are of no help at the moment in terms of guessing about direction. As a result, my guess is higher rates for the next few months, followed by a decline from there for the balance of the year.

I will be looking to put a long postion on in June and hold it through years end, unless something has changed dramatically leading up to that date.

[Chris Scoreboard Johnston]

I hate to disppoint the post about small investors moving the prices of this instrument. However, as someone who routinely commits to trades of seven figures and never sees the market move even a tick on the fills, I have to tell you that small investors have no influence at all in this market. Even a Goldman Sachs can only move prices for a few seconds so make no mistake about it, those models you refer to are exactly what determine where this market goes.

The seasonal bias heavily favors a upward move in yields into June, followed by a downward move through the end of the year from there. This has been particularly prominent during election years. The logic behind that I think is obvious, but that has what has historically occurred. The commercials are kind of in the middle here as far as positioning goes, so they are of no help at the moment in terms of guessing about direction. As a result, my guess is higher rates for the next few months, followed by a decline from there for the balance of the year.

I will be looking to put a long postion on in June and hold it through years end, unless something has changed dramatically leading up to that date.

[Chris Scoreboard Johnston]

I hate to disppoint the post about small investors moving the prices of this instrument. However, as someone who routinely commits to trades of seven figures and never sees the market move even a tick on the fills, I have to tell you that small investors have no influence at all in this market. Even a Goldman Sachs can only move prices for a few seconds so make no mistake about it, those models you refer to are exactly what determine where this market goes.

The seasonal bias heavily favors a upward move in yields into June, followed by a downward move through the end of the year from there. This has been particularly prominent during election years. The logic behind that I think is obvious, but that has what has historically occurred. The commercials are kind of in the middle here as far as positioning goes, so they are of no help at the moment in terms of guessing about direction. As a result, my guess is higher rates for the next few months, followed by a decline from there for the balance of the year.

I will be looking to put a long postion on in June and hold it through years end, unless something has changed dramatically leading up to that date.

[Chris Scoreboard Johnston]

I hate to disppoint the post about small investors moving the prices of this instrument. However, as someone who routinely commits to trades of seven figures and never sees the market move even a tick on the fills, I have to tell you that small investors have no influence at all in this market. Even a Goldman Sachs can only move prices for a few seconds so make no mistake about it, those models you refer to are exactly what determine where this market goes.

The seasonal bias heavily favors a upward move in yields into June, followed by a downward move through the end of the year from there. This has been particularly prominent during election years. The logic behind that I think is obvious, but that has what has historically occurred. The commercials are kind of in the middle here as far as positioning goes, so they are of no help at the moment in terms of guessing about direction. As a result, my guess is higher rates for the next few months, followed by a decline from there for the balance of the year.

I will be looking to put a long postion on in June and hold it through years end, unless something has changed dramatically leading up to that date.

[davelj]

The 10-year treasury has historically mean reverted to 250 bps real return and about a 300 bps inflation premium. (So, it’s averaged about 5.5% over the last 80 years.) The current on-the-run 10-year TIPS are yielding about 1.50% while the current 10-year nominal yield is about 3.80%. So, the market is pricing in that 10-year treasury buyers will be perfectly happy for the next 10 years with (1) a 1.50% real return, and assuming that (2) inflation will average 2.30% annually over the period. Neither of these seem like particularly good bets. But it could be a while before the prices mean revert.

[davelj]

The 10-year treasury has historically mean reverted to 250 bps real return and about a 300 bps inflation premium. (So, it’s averaged about 5.5% over the last 80 years.) The current on-the-run 10-year TIPS are yielding about 1.50% while the current 10-year nominal yield is about 3.80%. So, the market is pricing in that 10-year treasury buyers will be perfectly happy for the next 10 years with (1) a 1.50% real return, and assuming that (2) inflation will average 2.30% annually over the period. Neither of these seem like particularly good bets. But it could be a while before the prices mean revert.

[davelj]

The 10-year treasury has historically mean reverted to 250 bps real return and about a 300 bps inflation premium. (So, it’s averaged about 5.5% over the last 80 years.) The current on-the-run 10-year TIPS are yielding about 1.50% while the current 10-year nominal yield is about 3.80%. So, the market is pricing in that 10-year treasury buyers will be perfectly happy for the next 10 years with (1) a 1.50% real return, and assuming that (2) inflation will average 2.30% annually over the period. Neither of these seem like particularly good bets. But it could be a while before the prices mean revert.

[davelj]

The 10-year treasury has historically mean reverted to 250 bps real return and about a 300 bps inflation premium. (So, it’s averaged about 5.5% over the last 80 years.) The current on-the-run 10-year TIPS are yielding about 1.50% while the current 10-year nominal yield is about 3.80%. So, the market is pricing in that 10-year treasury buyers will be perfectly happy for the next 10 years with (1) a 1.50% real return, and assuming that (2) inflation will average 2.30% annually over the period. Neither of these seem like particularly good bets. But it could be a while before the prices mean revert.

[gdcox]

Graham

The ten year is too low. There has been a flight to safety worldwide that has pushed yields down abnormally .

[gdcox]

Graham

The ten year is too low. There has been a flight to safety worldwide that has pushed yields down abnormally .

[gdcox]

Graham

The ten year is too low. There has been a flight to safety worldwide that has pushed yields down abnormally .

[gdcox]

Graham

The ten year is too low. There has been a flight to safety worldwide that has pushed yields down abnormally .

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[Author]

Posts