In the wake of amusing calls by various Fed presidents about impending rate hikes, Curve Watchers Anonymous has received numerous questions about the US treasury bull market.
Specifically, readers want to know “Is the bull market over?”
From my perspective, the bull market is not over if yields on the long-end of the curve (10- and 30-year duration) make new lows. So, how likely is that?
Yield Curve 2001-Present
Treasury Bear Proclamations
For going on two decades, US treasury bears have called US treasuries “certificates of confiscation“.
Treasury bulls laughed all the way to the bank.
There were some steep selloffs in 2003, 2009, and 2012 leading bears to proclaim the end of the bull. 2015 proved the 2012 proclamation was wrong.
Undaunted, the bears simply proclaimed 2015 the end of the bull market.
Then, with a parade of Fed presidents touting rate hikes for over a year, and with more economists piling on those forecasts, the bears were sure they were finally right.
“Victory at Last!“, thought the bears. But here we are, flirting with new record-low yields on both the 10-year note and the 30-year bond.
And if the economy is sliding into recession (or already in one), or even if the economy simply stalls, the treasury bears will be proven wrong once again.
Yield Curve Flattens
On Friday, in response to a horrific jobs report, yield on the 30-year long bond fell 12 basis points to 2.52% and the odds of a rate hike this year shifted from July to December.
Note the action at the long end of the curve (blue arrows). The trend has been distinctly lower despite all the Fed hawk-talk.
The flattening of the yield curve (short end rising while long end sinks) is not favorable for bank profits or increased bank lending.