Bonds & Interest Rates

US Treasury Yield Curve Flattest Since December 2018

The US treasury yield curve, as represented by the spread between the 10-year and two-year bond yields, is currently the flattest since December 2018.

As of writing, the spread is seen at 0.097 basis points – down more than 17 basis points from the high of 27.5 basis points seen on July 18.

Notably, the benchmark 10-year yield, which stood at 2% on July 31, fell to 1.59% on Wednesday and is now trading at 1.70%, meaning the yield is down 30 basis points on a month-to-date basis.

Investors have rushed for the safety of government bonds amid escalating US-China trade tensions….CLICK for complete article

Rally Stumbles on Fed Concerns

Stock and bond prices fell on Thursday as forecasts of a more aggressive Fed rate hike declined. This decrease in Fed expectations was driven by a couple of factors, most notably the European Central Bank’s (ECB) rate decision early on Thursday.

The ECB left interest rates unchanged, as widely expected, and also indicated the potential for a rate cut some time this year. However, ECB President Mario Draghi downplayed the need for more drastic easing measures by saying that the risk of recession in Europe is “pretty low.” This language was somewhat of a surprise to analysts and economists who were expecting a more dovish approach. The resulting speculation that the Fed may also be less dovish than expected at next week’s FOMC meeting pressured stocks and bonds….CLICK for complete article

Which Countries Own the Most U.S. Debt?

In the international finance system, U.S. debt can be bought and held by virtually anyone.

In fact, if you hold a U.S. Treasury bond or a T-Bill in your portfolio right now, you are already a creditor to the United States government.

And as you can see in today’s chart from, foreign countries like China and Japan can also accumulate large positions in U.S. Treasurys, making them significant players in the overall United States debt pie….CLICK for complete article

The Economy Is Both Booming And Headed For Recession

“The economy at the moment is in a superposition of two states.”

A fixture of debates about the relative merits of Fed cuts in the current environment is the paradox of conflicting data, some of which suggests the US economy is rolling over, some of which suggests it’s not.

This is something that’s vexed Fed officials and while there are a number of ways to illustrate it, a simple visualization might simply show, on one hand, unemployment loitering at a five-decade nadir and, on the other, manufacturing surveys diving to Trump-era lows amid trade uncertainty.

Jerome Powell has, of course, spent quite a bit of time documenting the extent to which the data has a habit of sending conflicting signals. Trump’s trade policies cloud the outlook for corporate America and also for the Fed. With respect to the latter, there’s an argument to be made that the president is deliberately muddying the waters to engineer easier monetary policy….CLICK for complete article

The Fed Just “Came Clean” On Where the Next Crisis Will Start

For those how pay attention, the Fed has already broadcast what the next crisis will be…

Corporate bonds…CLICK for complete article

OK, I Get it, Markets Have Gone Nuts

When the economy goes into a downturn, even a plain-vanilla recession or near-recession and not a crisis, junk bonds behave badly. This is because over-indebted companies with iffy cash flows – those are the ones that are junk rated – begin to buckle….CLICK for complete article