Free Republic

It has been over three years since the disastrous Covid economic shutdowns of 2020. And here we are again! US investment-grade bond yields have just had the biggest two-day drop since April 2020. And the US Treasury 10Y-2Y curve remains steeply inverted. Help me Jerome!

US 10-year yields are rising at a rapid pace. US 10-year yields have risen to 4.70% from 4.0% since early August. The moves have come despite stable market-measured inflation and Fed expectations. Aside from some moderate underlying strength, there haven't been any big economic surprises either. The scariest part about it is that there's no good explanation for why it's happening.Lately, there's been some hope that it was quarter-end or some kind of one-off puke but with two auctions missing this week (including today), it's increasingly clear that real-money demand just isn't there. There are scenarios where this blowout isn't...

The Dow fell more than 400 points Tuesday morning, turning negative for the year, as US Treasury yields surged to their highest levels in over a decade. The Dow fell 427 points, or 1.3%. The benchmark S&P 500 declined 1.5% and the Nasdaq Composite lost 1.8%, extending the late summer selloff in stocks. Stocks have marched higher for most of this year, as artificial intelligence excitement took hold on Wall Street and powered tech stocks to stratospheric heights. But that rally petered out in August, as strong economic data had investors worried that a resilient economy and piping hot labor...

The Treasury market may be entering a period of historic volatility on par with March 2020 as leveraged investors have stalled in their purchases and a new marginal buyer has not yet arrived. When the Fed and commercial banks stepped away from the Treasury market in mid-2022, hedge funds stepped in (fedguy.com/back-to-2019/) and bought cash Treasuries in size as part of a cash futures basis trade. The financing for that trade is sourced through dealer repo, which grew rapidly in mid-2022 and has since stalled. While dealers have access to virtually unlimited financing from Fed repo borrowing (libertystreeteconomics.newyorkfed.org/2022/01/the-feds-latest-tool-a-standing-repo-facility/), the size...

A Wall Street selloff intensified Tuesday as rising Treasury yields piled on pressure and investors got a reminder not to expect a Federal Reserve interest rate cut any time soon. The S&P 500 (^GSPC) dropped almost 1.1%, while the Dow Jones Industrial Average (^DJI) tumbled about 1.1%, or more than 350 points. The tech-heavy Nasdaq Composite (^IXIC) was down over 1.5% after closing with a gain on Monday. Hawkish comments by Fed policymakers reminded investors that resilience in the US economy likely means borrowing costs will stay higher for longer. Traders are now pricing in odds of 29% that policymakers...

With its CDS trading like an emerging market, it is likely no surprise that Fitch Ratings has placed the United States' 'AAA' Long-Term Foreign-Currency Issuer Default Rating (IDR) on Rating Watch Negative.CDS is trading like USA is anything but AAA-rated...With Fitch placing the United States' 'AAA' rating on Rating Watch Negative, here is an update of a very old chart I used to published: Composite Credit Rating (across the agencies) vs. 5Y CDS Across Select Countries. For obvious reasons, US CDS isn't trading in the AAA range. pic.twitter.com/yzyN4jluA8— Michael McDonough (@M_McDonough) May 25, 2023The T-Bill curve is not buying the...

According to the latest report on international capital flows released by the U.S. Treasury Department on April 17 EST, at least 22 countries worldwide sold off U.S. Treasuries in February. Among them are China, Japan, the United Kingdom, Belgium, Switzerland, Ireland, Canada, India, France, Germany, the Netherlands, the United Arab Emirates, Australia, Israel, Iraq, Italy, Poland, Kuwait, Sweden, Colombia, the Bahamas, and Vietnam. In February, Japan, one of the largest holders of U.S. debt, sold $22.6 billion of U.S. Treasuries, reducing its position to $1.0818 trillion. Moreover, six of the G7 countries, namely Japan, the U.K., Canada, France, Germany, and...

Apparently, foreign Central Banks have lost faith in Biden and The Federal Reserve. Foreign Central Banks are selling US Treasuries. Other than The Fed, Japan and China are the two largest holders of US Treasuries. And they are bailing. Wake Biden up before all the Central Banks go-go.

Today, America owes foreign investors of its national debt $7.3 trillion.These are in the form of Treasury securities, some of the most liquid assets worldwide. Central banks use them for foreign exchange reserves and private investors flock to them during flights to safety thanks to their perceived low default risk.Beyond these reasons, foreign investors may buy Treasuries as a store of value. They are often used as collateral during certain international trade transactions, or countries can use them to help manage exchange rate policy. For example, countries may buy Treasuries to protect their currency’s exchange rate from speculation.In the graphic...

Silicon Valley Bank wasn’t an ordinary bank. It became the go-to bank for venture-funded technology startups in the most fertile business environment for innovation over the past 50 years, Silicon Valley. As business boomed over the past few years, Silicon Valley Bank made a big bet; it would invest in a virtual risk-free investment: government debt. The bank would earn just under 1.80% by committing capital for a relatively short duration (< 3-4 years).But management failed to account for a few critical yet tectonic shifts. The first major underestimation was that the Federal Reserve would hike rates as rapidly and...

The Silicon Valley Bank failure (along with NY’s Signature Bank) are sending shock waves through the global economy. Not because of the incompetence of bank regulators, but because of the reaction function from the FDIC and Fed. The 10-year Treasury yield is down -26 basis points in the AM. And the Fed Funds Target Rate is expected to drop to 4.7%. Its not just the US Treasury yield that declined -26 basis points. European sovereign yields are down too (Germany 10-year is down -32.9 basis points). On a sad note, Resident Biden is calling for stricter regulations for the banking...

The Federal Reserve is dazed and confused about inflation. As The Federal Reserve reaffirms their draining of the monetary punch bowl, we are seeing investors flock towards the bond market. Particularly the iShares Short Treasury ETF. $2.5 BILLION to be exact. Meanwhile, credit ETFs are hammered by record outflows of almost $12 Billion. The reason why? Inflation remains elevated which is leading The Fed to keep their foot on the monetary brake pedal. I’m an economist.

Well, here we are again. Back to 2007 and the housing bubble and subsequent financial crisis. The US Treasury 6-month yield is back over 5%, a yield we haven’t seen since August 8, 2007. Well, there is one notable difference. The Fed’s balance sheet is still at $8.4 TRILLION whereas it was only $866 billion on August 8, 2007. The US Treasury yield curve? It remains deeply inverted as The Fed withdraws liquidity.

TOKYO (Reuters) - Japan's finances are becoming increasingly precarious, Finance Minister Shunichi Suzuki warned on Monday, just as markets test whether the central bank can keep interest rates ultra-low, allowing the government to service its debt. The government has been helped by near-zero bond yields, but bond investors have recently sought to break the Bank of Japan's (BOJ) 0.5% cap on the 10-year bond yield, as inflation runs at 41-year highs, double the central bank's 2% target. "Japan's public finances have increased in severity to an unprecedented degree as we have compiled supplementary budgets to respond to the coronavirus and...

US Treasuries Yield Curve. An app for exploring historical interest rates.

The Federal Reserve is making up for Bernanke and Yellen’s “too slow to remove” Fed stimulus policies (QE1 – QE3) and Powell’s Covid-related QE4. Now The Fed is trying to remove the stimulus in a (misguided) attempt to cool inflation. Remember, the dramatic rise in prices was caused by more that Fed stimulypto, it was also caused by Biden’s executive orders driving up oil, gasoline and natural gas prices and the massive Federal spending bills signed by Biden. The result of The Fed’s jawboning about undoing Fed stimulypto is take away the punch bowl. But the results are troubling. Both...

Today we saw the 10-year Treasury Note yield break through the 3% barrier, then retreat as is there was a reflecting barrier at 3%. And in Europe, we saw a flash crash allegedly caused by Citi’s trading desk. The selloff was triggered by a large erroneous transaction made by the U.S. bank’s London trading desk, according to people with knowledge of the matter who asked not to be identified discussing private information. A knee-jerk selloff in OMX Stockholm 30 Index in five minutes wreaked havoc in bourses stretching from Paris to Warsaw toppling the main European index by as much...

Alarm! Particularly if you are a pension fund and hold US Treasuries and Agency Mortgage Backed Securities. The bad news is that the 10-year US Treasury Note declined in price, sending the yield up over 10 bps today. As The Fed is projected to raise its target rate over 10 times by February 2023, 10-year Treasury Note prices and agency MBS 3.5% prices continue to decline. Here is a video of The Biden Administration and The Federal Reserve attacking pension funds and Social Security.

LONDON, March 28 (Reuters) - The U.S. yield curve measured by the gap between five and 30-year government bond yields inverted on Monday for the first time since early 2006 as a sell-off in the market resumed, with short-dated bond yields jumping to their highest since 2019.

With inflation at its highest point in three decades, the Federal Reserve is set this week to begin winding down the extraordinary stimulus it has given the economy since the pandemic recession struck early last year, a process that could prove to be a risky balancing act. Chair Jerome Powell has signaled that the Fed will announce after its policy meeting Wednesday that it will start paring its $120 billion in monthly bond purchases as soon as this month. Those purchases are intended to keep long-term loan rates low to encourage borrowing and spending. Once the Fed has ended its...