Posted on 03/31/2022 3:25:19 PM PDT by lasereye
March 31 (Reuters) - A key part of the yield curve inverted on Thursday, according to Tradeweb data, as the two-year U.S. Treasury note yield rose above the benchmark 10-year U.S. Treasury note yield.
That part of the yield curve inverted on Tuesday for the first time since September 2019.
An inversion of the two-year, 10-year part of the curve is viewed by many as a signal a recession is likely to follow in one to two years.
The FED. Only buyer.
ibonds are paying over 7%
Folks who think the FED will start QE again and drive interest rates to a Japanese zero again.
“Who the heck is buying up the 10-year U.S. Treasury at a 2.345% yield with inflation running over 7%? The large bond buyers must be expecting a recession soon. What else could they be thinking?”
Exactly, it is one of the mysteries in my mind.
“Folks who think the FED will start QE again and drive interest rates to a Japanese zero again.”
But the Fed is going to raise rates multiple times this year.
“ibonds are paying over 7%”
I bought me some.
True, I own a bunch of them, but for many years an ddecades they paid very little. In hindsight I would have been MUCH better off in SPX.
“Who the heck is buying up the 10-year U.S. Treasury at a 2.345% yield with inflation running over 7%?”
Is the same as this:
“Who would stupid enough to buy an umbrella today when it is sunny?”
Those are 10 year bonds. Just because inflation is 7% today doesn’t mean it will be 7% for the next 10 years, recession or no recession.
Remember that inflation is measured year over year. So, if we had 7+% inflation again NEXT year, that'd be on top of the 7+% we had this year.
More likely is that we'll have ~4% inflation in 23 (per recent Fed projections), which still ain't good - but it's not gonna be 7% again year over year unless the wheels truly come off the cart. (Actually, with Brandon in charge, anything is possible..)
Inflation would have to come down about 5 points to get to 7%. “Real world” inflation is more like 12-15% recently (depending on the product(s)).
I pretty much only buy google Amazon Apple and Walmart
Someone here on FR posted WM grocery prices comparing 12 months of change. Very shocking when you see it in a year increment.
If inflation goes to 3%, which many people don’t expect any time soon, the bonds still don’t even break even. By the time it goes to around 2% the buyer will have suffered a negative return that can’t be recovered.
Ok, so why are savvy bond traders and buyers buying them, since you think they will lose money?
As I said, the only thing I can think of is they expect a recession soon - probably no more than a year.
Or, maybe they expect outright deflationary times to return sometime during the 3-10 year range.
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