Three things: 1: I’m not the world’s foremost bond authority, 2: let’s also understand that todays’ rates are “todays’ rates” (meaning...that there is a “tomorrows’ rates”, just like there are today and tomorrow and next month and next year prices in the stock market) and 3: the article is REALLY specifically talking about (when mentioning “CDS spreads” the “cost to insure” Treasury bonds, whereas my comment noted the coupon or yield on the 10-year bond, which is at something like 50-year lows at these levels.
The article is “just” pointing out that the cost to insure Treasury debt is rising, which is mentally dissonant in and of itself, because you’re not supposed to have to insure Tsy debt, are you? It’s guaranteed by the world’s biggest guarantor. It supposedly sits atop the hierarchy of debt instruments one can possibly buy. Of course, now that CDs to $250K are guaranteed, now that agency debt in the hands of the Chinese is guaranteed, now that GE has access to the FDIC, all of these actions expanding the universe of things guaranteed by the ultimate guarantor, the question arises, how much of this stuff can REALLY be guaranteed? Or is it jawboning?
My comment is about the extremely low yield of the 10 year. Now, this yield, whatever it is, can be produced by a mass run to perceived safety: Folks buy bonds like crazy, driving UP the rice, driving DOWN the yield. But the bond market is generally thought of as smarter than the stock market, and this yield can ALSO be thought of as a reflection that the market is anticipating deflation. The Fed and Tsy fear nothing as much as they do deflation. And, it is not pleasant to live through, even though prices get lower as time goes on. But the “today” signs are signs of a very severe deflationary credit-led recession. Assets get cheaper and cheaper, but nobody buys because they believe they will get even cheaper later. But it must be remembered that there is an “after” on these doomsday scenarios.
In this environment, CASH becomes a most valuable investment. Govt debt YOU ALREADY OWN is a GREAT investment, because it is very safe and its yield is not attainable today. Govt debt YOU BUY TODAY is probably NOT a great investment. The yield sucks.
To summarize what MY comment was about: this bond rate forecasts a serious recession.
See post 15.
“The article is “just” pointing out that the cost to insure Treasury debt is rising, which is mentally dissonant in and of itself, because you’re not supposed to have to insure Tsy debt, are you? It’s guaranteed by the world’s biggest guarantor”
With CDS, it isnt about the government side. It’s about the default risk of the people buying the government debt. The amount they have to both pay and obligate themselves to pay if things go bad has risen dramatically for people playing in government debt markets.
The thing is, the ultimate reason CDS $$$ is going through the roof is the increased threat of US government insolvency. If the creditor is holding worthless US treasury notes, he’s sunk too. So it’s getting harder and harder to find anyone to be counterparty to a credit swap. So the $$ amount the counterparties to people buying US treasury debt charge is rising. So the CDS is going up up up.