New Record Low Yields on 10- and 30-Year Bonds: Double Cut?

Mish

Treasury yields continued a massive plunge today with new record lows. I sense a double rate cut by the Fed on March 18.

CME Fedwatch Odds

If these yields hold the Fed will practically be forced to cut interest rates by 50 basis points on March 18.

As it stands a quarter point cut would leave the 10-year treasury yield inverted with the Effective Fed Funds Rate by 16.3 basis points.

What's Happening Background

  1. Feb 19: Fed Minutes Highlight Coronavirus Concerns and Uncertainty 8 Times
  2. Feb 24: Bond Yields Crash and Gold Soars on Pandemic Threat
  3. Feb 25: CDC Admits Spread of Coronavirus in the US Appears Inevitable
  4. Feb 25: Lie of the Day: This is Not a Pandemic
  5. Feb 25: Nearly 50% Odds of "At Least" 3 Rate Cuts by December
  6. Feb 26: Trump says We are "Very, Very Ready for the Coronavirus, for Anything"
  7. Feb 27: Useless Act: California Monitors 8,400 People for Coronavirus; 33 Test Positive
  8. Feb 27: Containment Fails: Coronavirus Tweets of the Day
  9. Feb 27: Tweets of the Day: Iran's VP Infected, Japan Closes All Schools
  10. Feb 28: 5 Mistakes by the CDC and FDA Set Back Virus Testing

Mike "Mish" Shedlock

Comments (44)
Sechel
Sechel

What would the Fed do if the U.S. entered a recession?

Seems The Fed can't accept the fact the U.S. has economic cycles. If it were an athlete it would insist on running marathons 365 days a year and as an exercise enthusiast I can tell you the human body wasn't designed to do that. The economic analogy would be the Fed doctor prescribing steroids instead of a recovery rest

No. 1-22
Tony Bennett
Tony Bennett

"If these yields hold the Fed will practically be forced to cut interest rates by 50 basis points on March 18."

...

If not (coordinated with other central banks) sooner.

What will be interesting is to see how long these measure hold before route continues. Back in 2008 the half life of Central Banks / gov interventions got shorter and shorter. Will they work now? How long? A week? A couple of days? Hours?

KidHorn
KidHorn

At the way things are going, they won't wait until March 18. Reminds me of the surprise 0.5 rate cut in early Jan 2000. Followed by another a few weeks later.

Greenmountain
Greenmountain

And then what other tools do they have to prop up the economy? Or what will Kudlow and Mnuchin dream up? Tax cuts for the middle class? A massive infrastructure bill?

Bam_Man
Bam_Man

What is the point in holding a bond/note with a yield to maturity of 1.1%? The possibility of a huge capital loss hangs over your head unless you are willing to hold to maturity. Holding to maturity at a negative real interest rate means you get hit with the loss when you get your principal back at maturity. Guaranteed loss of purchasing power. Makes no sense.

lol
lol

CB's fixin for massive lights out money printing,next exit hyperstagflation!

shamrock
shamrock

Why is gold down 4% in this scenario?

daveyp
daveyp

Central banks can spunk all the money they like at this. It won't change a thing. Great depression #2 is baked in IMO.

sangell
sangell

I dislike Jim Cramer but he was spot on this morning. Monetary policy is irrelevant in this situation. Its a biologic crisis and low interest rates or even negative interest rates are not going to entice anyone to buy a house a new car or travel. The Fed just wants to be seen 'doing something' and juice asset prices.

Danno1
Danno1

Cramer spot on?

abend237-04
abend237-04

Algos rule us; Only a machine would think the 30 year bond is a good deal under 3, but I'm beginning to waver in my adamant refusal to accept that it can go there...

Casual_Observer
Casual_Observer

Expect the same as 2008-2009. TARP-C (for Coronavirus) is coming.

Casual_Observer
Casual_Observer

The Fed will start buying stocks and bonds and everything else like they did in 2009-2012. There is literally no way they cannot bail out the system under the circumstances. Emergency meetings this weekend in Europe. Expect an announcement come Sunday.

Bozo
Bozo

Bring on the Cash for Clunkers II.. my 04 Ford is overdue for an upgrade.

AWC
AWC

What-Ever-It-Takes!!!!!!!!!!!!

Buy the dip,,,you can always sell it all to the Fed. Before this is over, they will be buying houses, cars and Nike’s.

thimk
thimk

the dollar is in the crapper also , maybe taking gold down with it ? Long bond rules ,to date .

Art Izagud
Art Izagud

UBI would make much more sense than Fed shenanagans. People could quarantine. Let asset prices fall and a new economic system based on a Citizens Dividend of 10 percent of GDP begin. What point is there in saving the system that makes the young into serfs while older generations don't need to adjust their lifestyle. Time for some new thinking. And those who think people will not want to work, BS! People want to be of service in various ways, yet are so beat down by a lack of dignity that they result in escapism.

njbr
njbr

All that buying late in the session....I wonder how Monday will look when the additional cases surface and the news of "reinfection" of "recovered" patients is digested.

Have you figured out how you can reopen a quarantined area when the people there still carry the virus?

lol
lol

What a mess,omg, zero to show (less than zero)after a decade of "expansion",a decade of "recovery"lol,record low unemployment "rate",GDP "rate" at a permanent "2%",inflation "rate" near zero lol.The one and only overriding queston…...can big govt hold it together to even have an election in Nov.?Vegas odds don't look good!!

TumblingDice
TumblingDice

Have people never heard of supply and demand. The stock market was trading at all-times highs. So to reduce risk money is being moved to a less volatile investment of bonds. Higher number of people (think more supply) buying bonds allows sellers to lower rates (because more demand).

Why do people think the Fed misplaced rates?

As a sidebar, I would like to know who is doing all the selling, my thought would be high-frequency traders and leveraged hedge funds (probably the same people who drove the market up). Personally I a long investor and looking for deals.

TumblingDice
TumblingDice

A continuation from my above post. I can't totally blame people for driving the market up as the Fed has had very low rates for 10 years (at times talk of raising rates causes market fits). Then you have the Trump tax cuts from 2 years ago raising the Budget deficit, when he claimed he would reduce the deficit and national debt.


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