The interesting thing about Lacy’s call is not just that he was forecasting lower rates – it’s that he was forecasting rates that would represent historical lows. Nobody else on the planet was making this kind of call two years ago.
That prediction came from Lacy Hunt’s 2Q 2014 report for Hoisington Investment Management:
“With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt, we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.”
The yield on the 30Y around the time Lacy wrote that (July of 2014) was 3.35%, and just about every bond “expert” on CNBC or the WSJ was calling for higher rates at the conclusion of QE3 later that year. The man is a sorcerer…
...and continued trending downward through the Fall of both those years. I don't have a position, that's just an observation. Will history repeat this year?
These historically low rates point to the Fed's continued policy error, so I'm not sure why you think the Fed wants them. Despite what Bernanke said at the time, the whole point of quantitative easing was to raise “animal spirits” and inflation expectations, knowing full well that higher long-term rates would result (and they did). Long-term rates rose over 100 bps during QE1, QE2 and QE3. And when the Fed announces QE4 sometime next year to combat the world’s deflationary death spiral, we’ll likely see long-term rates go up again (unless US investors, like European investors, have finally lost faith in central bankers’ ability to create inflation).
For the past 2 years here, I’ve been saying that the yield on the 30Y was headed to 2%. Now I’m not so sure – it might just go lower. In a world where 50Y Swiss bonds have a negative yield, I’m not sure of anything anymore. By the way, nobody has to “tie up” money for 30 years when buying 30Y paper (except maybe pension funds and life insurance companies).
I almost forgot to include Bob’s recommended strategy:
“I generally want to be long bonds, especially long US duration, I want generally to be long the USD (as the least bad), and I generally want to be flat/short equities as equity valuations are not in my view supported by growth or earnings but rather only through heavily distorted markets/policy and financial engineering of EPS…More broadly, I expect 10yr and 30yr UST yields to trade down to 1.25% and 2% respectively over Q3, and I’d treat equities as an occasional tactical trading asset, where weekly S&P 500 closes below 2040 and above 2136 define the core range around and within which to trade this asset class."
Bearish Bob nails the world’s problems in his latest note from Nomura:
"The big driving forces we need to think about are globalization, technological advancement, excessive indebtedness, stifling (but probably necessary) financial sector regulation and rapidly deteriorating demographics. These factors are largely deflationary and are here to stay, Brexit or no Brexit. Globalization in particular has been wonderful at a global level, as it has helped reduce global poverty greatly over the last two to three decades. But the price has been stagnant-to-falling real incomes and standards of living in the developed world, covered up by significant and still growing indebtedness. Fiscal policy options and flexibility have been severely hit by the choice policymakers took back in 2008 and the years that followed to bail out the financial sector – this fiscal spend has resulted in little, none or even negative multipliers in the last 5+ years. For sure, policymakers were faced with stark choices at the time, but I maintain the view I voiced at the time back in 2008-09, that the hit from the failure of the financial system should have been spread more among financial sector bond and equity investors rather than the policies of austerity and financial suppression which have sought to socialize the cost largely among the bottom 90% of the population.
As such, fiscal policy has failed the real economy, particularly in developed markets, for nearly a decade. And by dumping the responsibility for the heavy lifting for growth on central banks, we have ended up with asset bubbles, rampant speculation, lack of investment in productivity and in the real economy, significant levels of financial engineering to artificially boost earnings, and merely the (now failed) hope that “trickle down” still works. The outcome has been almost unprecedented levels of rising inequality in the global economy..."
Shorting TLT is like shorting Japanese bonds back in the nineties. It's the new widow-maker's trade, lol
It's not as if Grandma Yellen is one of the 1%, far from it. I actually believe she's well-meaning but clueless, the same way most of my economics professors in college were clueless. Hank Paulson, on the other hand, is a different story...
That's actually a good question, and I was wondering the same thing earlier today. Tracking errors (divergences between an ETF's price and its NAV) aren't that unusual in the scheme of things (one reason I prefer to hold my 30Y Treasuries directly), but they're usually arbitraged away by the computers. Yields ended up dropping in after-hours trades, so maybe somebody knew something?
It’s a global relative value trade: Japanese 30Y is yielding 0.09%; German 30Y is yielding 0.39%; French 30Y is yielding 0.96%; UK 30Y is yielding 1.77%. If you worked in the fixed income department of a European or Japanese pension fund or life insurance company (and were required to be in sovereign bonds), where would you put your money?
You realize there's only about a dozen people (maybe) who visit this board on a regular basis, right? Do you really think you're going to influence the $18 trillion Treasury market with your obsessive posts?
Central bankers are destroying the global economy with their collective insanity, which is why I’ve been betting on lower interest rates for the past few years. As much as I give Bill Gross and Jim Grant a hard time, I also think they’ll eventually be proven right. But being early is the same thing as being wrong. Before we get to the final endgame (helicopter money), we’ll have to endure QE4, QE5, etc. In the meantime, I’ll play the ups and downs, as well as continue to build positions in gold and silver.
Wish I could take credit, but I collected those from a variety of sources (I think one guy in particular came up with at least five of them, though, in a tweet that went viral soon after the vote).
Eyewitnesses on the ground estimated about 1500 protesters showed up, but I think even that was generous. But, to be fair, who wants to go carry a sign around in the rain, haha
And we bounced off 2.25% earlier today - who could have seen that coming? Is 2.25% the new 2.50%?
There are literally tens of tens in Trafalgar Square right now, protesting Brexit. You can faintly hear their chants during the CNBC reports: "Best out of three! Best out of three!..."
Don't forget Goldman Sachs, I love to mock those guys too, lol
Wow, you are quite the prolific poster of nonsense. TLT actually closed today at a slight discount to its NAV of $139.28 (per the iShares website). Hedge funds generally arbitrage away any significant discrepancies between the price of TLT and the value of its underlying holdings. I prefer to hold 30Y treasuries directly myself, as I can construct a portfolio of longer duration. I suspect you don’t even understand the concept of bond duration (TLT’s duration, by the way, is currently 17.93 years). Maybe you should start posting on the TBT board, and join all the other folks who have zero understanding of the bond market?
Yields from earlier today…
British 10Y gilts down 15 bps to 0.94%
German 10Y bunds down 6 bps to NEGATIVE 0.105%
French 10Y down 8 bps to 0.316%
Japanese 10Y down 2 bps to NEGATIVE 0.205%
Swiss 10Y down 5bps to NEGATIVE 0.54%
Lastly, US 10Y down 10 bps to 1.48%