Treasury Market Turns Upside Down

Mark this day on your calendar, folks.  Today the longest Treasury maturity traded at a lower yield than the shortest.

One month yield: 2.08%

Thirty year yield: 1.98%

This also marks the all time lowest yield for the long bond, and the first time ever under 2%.

All the more remarkable considering that Treasury supply is also in all time record territory, with government borrowing running at a trillion dollar annual pace.  Yet investors are paying up as if bidding for the last bond in the world.


5 thoughts on “Treasury Market Turns Upside Down

  1. Llanlad says:

    Thank you for your comments on this blog.
    For many commentators in the finance world the inversion was a big recession signal.
    With the government fixing the price of bonds do you think they signal anything any more? Is there any way of knowing what the actual “market” price would be?
    Also gold and the dollar strengthened significantly at the same time; this seems a more difficult market to “fix”? Does that portend anything or is it just short term noise? Or we just don’t know?

    1. Bill Terrell says:

      Thanks for the reply. I think until proven otherwise the signal from the yield curve should be assumed to mean just as it has in the past. It’s true that there has been unprecedented central bank involvement in the sovereign debt markets, but in the US at least, the Federal Reserve has been active mainly at the front end of the curve. It’s remarkable that virtually the entire stock of US Treasury debt, a twenty trillion dollar plus market, has recently traded at yields below the Fed funds target rate. This indicates that the Fed is essentially holding up the short end of the market, that is, is tight, and that a cut in its rate target could be justified merely on the grounds of bringing it more into line with where the market already is.

      Bear in mind though that the darker implications of a yield curve inversion aren’t contemporaneous with the inversion itself. Historically the yield curve uninverts first. Only once it’s no longer in the headlines and most investors have forgotten about it do we ordinarily see a bear market in stocks.

      I believe the main driving force behind gold prices of late is simply the disappearance of yield in the realm of financial assets. One of the classic objections to gold as an investment is that it “has no yield”. Well, if bonds don’t either then what? Some sixteen trillion dollars of global bonds are actually trading at such high prices their yields are negative. And as Treasury yields draw ever nearer to zero, the yield disadvantage of gold does as well.