Rates are approaching Great Depression levels for the same reason they did in the 1930's: extreme over-indebtedness is choking economic growth. The US has averaged real GDP growth of only 1.8% annually since the year 2000 (half the rate of the previous 130 years). The total debt (public and private debt combined) to GDP ratio surpassed 275% in that year, and is now around 345%. So long as we have this weight tied around our necks, real GDP growth will remain anemic, and interest rates will follow suit.
You keep referencing people who know very little about the bond market, or have gotten it completely wrong in recent years: Jim Cramer, Henry Blodget, Brian Kelly, Jim Grant (who's been predicting higher rates forever), etc. What were their predictions for 2014? I'm betting they all forecast higher rates for a year in which rates crashed and 30Y bonds provided a total return of 30%. Perhaps you should start following the contrarians who actually got it right and have been right for the last several years, such as: Lacy Hunt (Hoisington); Jeff Gundlach (Doubleline); Guy Haselmann (Scotiabank); Bob Janjuah (Nomura); Albert Edwards (SocGen); and Gary Shilling.
We'll be stuck in this low range of interest rates for another decade or more (we're repeating the Japan experience). I'm not saying it's not tradable, though. Sell or short bonds when the Fed announces QE4, and buy them back when the Fed ends QE4. Sell them when the Fed announces QE5, and so on...
Bank of America reported last night:
“Large speculators strongly increased their net short position on 10Y T-notes to -$25.8 billion from -$20.1 billion notional.”
This is the largest net short position in three years. And when speculators do that, the market usually moves the opposite direction…
Investors waiting for higher interest rates over the past 5 years are a better example of waiting for Godot. Higher interest rates are always supposed to be right around the corner, but they never seem to get here. Look at an interest rate chart for the past 5 years and you’ll see lower highs and lower lows. There are too many deflationary forces in the world at the moment: China and Europe slowing; commodity prices crashing; Japan trying desperately to weaken the yen; etc. When these all combine, the path of least resistance for global interest rates is downward. As I’ve said many times here, I believe interest rates will fall much further than most investors believe possible. When the Fed announces QE4 to combat the coming deflation, THAT will be the time to sell bonds (or even short them).
It wouldn't surprise me to see rates tick up through the end of the year, and maybe even into January. Hope always springs eternal this time of year regarding the economy. But then reality will set in, and investors will once again appreciate the full implications of a deflationary environment.
I like James Grant - very erudite and a sharp critic of the Fed - but hasn't he been predicting higher treasury rates for several years now?
Long-term treasuries are a leveraged bet on deflation (thank you, hyperinflationhyenas), and today’s 1.32% CPI is far more indicative of where interest rates are headed than Janet Yellen’s confusing Fedspeak. As Albert Edwards has presciently warned, a tidal wave of deflation is traveling from East to West. Once the market gets over its initial confusion, interest rates will resume their slow death spiral.
This is the first time I've ever agreed with one of your posts. The Fed hates that the 30Y yield is so low because it means inflation expectations are low, and that's all the Fed really cares about. But they won't be able to do anything about it until next year when they announce QE4. And when that happens, it will finally be time to sell the long bond.
Bears have been making this argument all year long, yet 30Y treasuries are up almost 30% year to date. In the next couple of years, interest rates will fall lower than most investors believe possible. And by the way, nobody here gives a #$%$ what those CNBC morons think.
Foreign ownership of long-term US treasuries is tiny - only about 8% of the total. You have no idea what you are talking about.
And Guy Adami said TLT was going to $131. You guys are trying to short the wrong market - you should go over to the HYG site where the real carnage is happening. The money is pouring out of risk assets and rotating into Treasuries.
And Guy Adami predicted TLT was going to $131. What makes you think any of those "traders" are worth listening to?
If you had bought 30Y Treasuries last December, when all of the "experts" in the media were telling you that rates were going to rise in 2014, you'd be up about 30% year-to-date.
Foreign ownership of Treasuries with maturities exceeding 10 years equates to only about 8%. The long-term bond market in the US is principally a domestic market.
The Fed can control short-term rates, but it's much harder for them to control long-term rates. Long-term rates are nothing more than a barometer of economic activity and inflation expectations, and both happen to be falling at the moment. If the Fed tried to raise short-term rates now, during this feeble "recovery", it would perversely cause long-term rates to fall even further (as the bond market would anticipate the slowdown that the increase in short-term rates would cause). Study the experience of Japan and trade accordingly.