It depends on whether investors in Europe think the ECB's efforts will create the inflation that the ECB claims it will. I don't know enough about the dynamics of the Euro or the mindset of European investors to really have an opinion on that. Here in the US, the Fed was able to raise inflation expectations during the various iterations of QE, and so long-term rates rose. At a certain point, one would think investors would eventually catch on to the fact that it's a lot harder to create inflation than most people think.
You’ve been on this message board since mid-November complaining about low interest rates. All they’ve done since then is go lower. If you had just bought some TLT at that time, you’d be up 14% by now (not counting distributions).
How quickly investors forget. Long term rates dropped over 100 basis points at the end of both QE1 and QE2 (and rates actually rose during QE1, QE2 and QE3). I spent the fall of 2013 on this message board suggesting that rates would fall when QE3 ended too, but people just wanted to argue with me. Strange. All they had to do was look at a freaking chart of interest rates for the past 5 years...
CPI averaged 1.62% for 2014, and there's an excellent chance it will be unchanged for 2015. The latest Y/Y CPI print (December) was 0.76%, and will likely go negative within a couple of months. Long term rates will follow the CPI downward, so you'd better get used to it. Sometime this year we will likely see the 30Y yielding below 2%.
A 2.40% yield on 30Y treasuries, when the CPI increase for all of 2015 will be around 0%, is actually a decent value.
For months, tinipupinni has been predicting this was going to happen (and why), so it's not like this was a big surprise to those who really study the toy industry.
As a trader, isn't it your job to anticipate all this "manipulation" and figure out how to profit by it?
The CRB Commodity Index is now down over 30% since its June 25th peak, and over 40% lower than its 2011 peak. Jim Grant hauntingly recalls the drop in commodity prices prior to the 1921 mini-depression in his recent book, The Forgotten Depression:
“No stock-market crash announced bad times. The depression rather made its presence felt with the serial crashes of dozens of commodity markets. To the affected producers and consumers, the declines were immediate and newsworthy, but they failed to seize the national attention. Certainly, they made no deep impression at the Federal Reserve…”
Based on December’s Y/Y CPI print, the current inflation rate is 0.76%, so I’m not sure where you’re getting the 1.7% number. When the CPI print for all of 2015 comes in at near zero, you are going to think back and realize that today’s 2.4% rate on the 30Y was actually a decent value (but by that time the rate on the 30Y will have fallen to 2% or lower).
Spanish 10Y currently yielding 1.35%; US 10Y yielding 1.82%. Just to refresh your memories, Spain’s unemployment rate is around 24%, and its government debt to GDP ratio is around 98% (and will likely surpass 100% this year). Speculators are apparently going to drive Spanish yields down to Japanese levels as they continue to front-run the ECB.
This is what happens when long-term Treasury yields drop to Depression-era lows, and still have further to drop (look at rates in Europe and Japan). And when the 30Y Treasury bottoms around the 2% level, there won't be a V-shaped recovery in rates, more like an L-shaped malaise for years. Bond equivalents like ED should continue to do well.
It can be a volatile number from week to week (especially this time of year), which is why most analysts use a 4-week moving average to smooth the data. For the last few weeks, though, the 4-week moving average has been trending upwards.
Lost in all the European QE madness was today’s initial jobless claims number of 307,000, making it the third week in a row above 300,000 (for the first time since July). This is one of the most reliable of all the leading indicators. For those keeping score at home, the 4-week moving average is now at 306,500. But...I thought President Obama told us everything was fixed?
I would have guessed that Spanish and Italian bonds would have sold off in "sell the news" fashion today, but the opposite has happened. Yields on both have dropped double digits: Italian 10Y yielding 1.58%. Spanish 10Y yielding 1.43%!
I’ve been a fan of Lacy Hunt for years. A former chief economist for the Dallas Fed, he has a rare combination of qualities for a bond strategist: he’s both a superb economist and a historian of the bond market. He is assuredly not some sort of fringe doomsday prepper. Yet his 4Q14 quarterly report for Hoisington Management, released earlier today (and available for free at their website), is devoted to the global economy’s current parallels to the Great Depression. It’s the kind of thing that makes you go, hmmm…
First off, the only market I really study is the US treasury market, so anything I might say about Euro bonds is just a guess. Second, if one were to try to short that market, I would think you'd want a fund loaded with debt from the peripheral countries (Spain, Italy, Greece, Portugal) and not just some general Euro bond fund that also included bonds from strong countries like Germany, Austria and the Netherlands. Guy Haselmann (Scotiabank) issued a note a couple of days ago about his favorite pairs trade: long US treasurys, short Euro peripheral bonds. The title of the note was 'ECB QE – Design Matters More Than Size'. It was posted on the ZeroHedge website a couple of days ago, or you might try a google search.
And here was the punchline to the report:
“In the aftermath of the debt induced panic years of 1873 and 1929 in the U.S. and 1989 in Japan, the long term (30Y) government bond yield dropped to 2% between 13 and 14 years after the panic. The U.S. Treasury bond yield is tracking those previous experiences. Thus, the historical record also suggests that the secular low in long term rates is in the future.”