Why did some equity ETF's last week drop far more than the NAV of their holdings? It's called tracking error, and it's one reason I hold 30Y Treasurys directly instead of relying on an ETF like TLT. I honestly don't know a lot about TLT (and really don't care), and only post here because it's a logical place to discuss the long-term bond market.
If you really believe your last sentence, you should think about allocating some cash to 30Y Treasurys. If rates rise 25 basis points, buy some more. If they rise another 25 basis points, buy some more, and so on. I have a feeling that in the next year or two, though, we'll all be nostalgic for yields in the 3% range on a US Treasury. And if this ends up being wrong, worst case is that you just hold them and collect quarterly interest payments for the next 30 years...
Surprise! The IMF says global growth will be weaker than expected, lol. From IMF head Christine Lagarde this morning: "Overall, we expect global growth to remain moderate and likely weaker than we anticipated in July," Lagarde said. "This reflects ... a weaker-than-expected recovery in advanced economies and a further slowdown in emerging economies, especially Latin America."
The US ISM fell to 51.1% in August, the lowest reading since May 2013. The official Chinese PMI fell last month to a three-year low. Canada, our largest trading partner, is now technically in a recession. S. Korea’s exports collapsed an unprecedented 14.7% (and S. Korea is only the first major exporting country to report). What will be the next shoe to drop? Lol…
Look at the first trading day of the month for the past 6 months. Almost every month, the yield on the 30Y rose by 8-10 basis points. Today is surprising because the increase is so low. Banks load up on Treasurys at the end of the month for regulatory reasons, then dump them the first trading day. I wouldn't read too much into today's action.
Banks load up on Treasurys for regulatory and cosmetic reasons at the end of the month, then dump them the first trading day of the following month. Last month was unusual, but look at the first day of trading in the months of March, May, June, and July of this year when the yield on the 30Y rose 8-10 basis points each time.
“Disney will hold a live global merchandise unboxing event on the “Star Wars” YouTube channel for the products and toys that will accompany the “Star Wars: The Force Awakens” film. In a news release, Disney said the event will play out over 18 hours and in 15 cities in 12 countries. The “New Years Eve–style celebration” kicks off at 5:45 p.m. Eastern time on Wednesday, September 2nd, and will wrap up at 8 a.m. Pacific time (11 a.m. Eastern) on Thursday, September 3rd, at Lucasfilm’s San Francisco campus.”
“The massive event will hit countries in Asia, Europe, Canada and North and South America, and tap online personalities from Maker Studios network — the largest content network on Google’s Inc.’s YouTube — to help unveil the “Star Wars” merchandise.”
There's no good reason to hike rates based on current economic data (if there were, why didn't they hike last summer, when we actually had inflation and better GDP numbers?), so I'm arbitrarily choosing the stock market as my indicator. By the way, I think a rate hike would be a net positive for long-term bonds, as the market would price in slower economic growth and even lower inflation (or likely deflation).
The stat I've always heard is that foreigners in total own only 8% of Treasuries with maturities greater than 10 years. That would imply that the Chinese account for a small fraction of the total, although I haven't been able to find a good site that breaks down foreign ownership by maturity to confirm.
This is where I would normally point out that the all-time record inventory build in Q2 is going to massively subtract from GDP in Q3 or Q4 (or whenever the ugly liquidation occurs). But who am I kidding, the only think that matters is if the S&P 500 continues to climb. If it does, we get a rate hike in September. If it crashes again near the meeting, we don’t. Simple.
Oh, so you follow my posts that closely, haha. We saw negative CPI prints for the first five months of the year, so that has happened. Maybe I was overly optimistic (pessimistic?) on the level of the 10Y, but the year isn't over yet, so we still don't know, do we? Europe and Japan, though (and now China) are clearly exporting their deflation to us...
I've been posting on this board for over two years now. Everything that I've said was going to happen has happened, sometimes even exceeding my expectations (rates fell further than most imagined possible back in January). I sold my entire portfolio of 30Y treasurys in February (missed the absolute bottom in yields, but great return overall). I began buying again when the yield on the 30Y rose above 3%, and was prepared to dollar-cost average back in at 25 basis point yield increments, but it looks like that's not going to happen. (My timing on the sale, by the way, was just lucky, as the longer term trend was still intact - I just didn't want to risk giving up my large gains.) The articles I post are from the handful of analysts who have gotten it right in recent years (very few correctly anticipated the remarkable year in bonds last year). Why would I post articles from the folks who have been nothing but wrong?
I agree the Fed has no idea what it’s doing, but the Chinese have shown they don’t either, as they're seeing record capital flight since the yuan devaluation. Ambrose Evans-Pritchard (the must-read financial columnist for the UK’s Telegraph) said it best: “The PBOC is faced with the “Impossible Trinity”, a textbook case in economics where you cannot control capital flows, monetary policy, and the currency, all at the same time. One has to give.”
You can find a monthly breakdown at the Treasury’s website, although it’s not easy to find. A google search of ‘Major Foreign Holders of Treasury Securities’ would probably be easier (the current one is updated through June). Japan, with $1.2 trillion in holdings, would currently be number one, followed closely by China (just slightly less, assuming those sales since June). The change in Chinese holdings over the past 12 months isn’t obvious per the chart, since they were using proxies in Belgium to hold around $180 billion (Belgium itself historically holds around $180 billion, so anything above that was likely Chinese).
Today's stock rally can be pinned on Dudley's comments. He basically told Wall Street he got the message loud and clear, so no rate hike in September. Risk on! Sell your bonds and buy more stocks!
Haven't you figured out yet that the only "data" the Fed is watching is the level of the S&P 500? Why do you think William Dudley said earlier today that a September rate hike is now less compelling?
According to JPM, the Chinese sold about $107 billion of US Treasurys the first half of this year (mostly in the months of April, May and June). According to SocGen (via Zero Hedge), they've supposedly sold another $106 billion in just the past two weeks, which is a rather stunning number. ZH's reaction: "In retrospect, it is absolutely amazing that the 10 and 30 Year Bonds haven't cratered considering the amount of concentrated selling by China." To which I would say, not only have long-term bonds not cratered, the yield on the 30Y is actually a few basis points lower than where it was two weeks ago, which leads me to conclude that the vast majority of the paper being sold by the Chinese is short-term paper and, so far anyway, the long bond doesn't seem to care.
I don't even care what the Fed does, but they should just make a decision and announce it tomorrow in order to calm down financial markets. They've had seven years to think about it - do they really need three more weeks of data to figure it out?
There’s always been a high correlation between the yield on the 10Y Treasury and the 10Y German Bund (over 90% the past 20 years), but the yield spread has been unusually tight since April, averaging about 157 basis points over that time. The past 10 days has been odd, though, as the spread has been narrowing, from around 154 basis points 10 days ago, to just 137 basis points today. The yield on the Bund jumped 14 basis points just today, to 0.73%. I’m not sure what to make of it, if anything, just thought it was interesting. I don’t follow European markets, so I’m not sure what was responsible for the dramatic jump in German yields.