The past couple of weeks have been breathtaking for bond investors and observers of the bond market. The yield on the Treasury bond is now at a record low—it dipped under 2% this week— and the Treasury is not far off its record low of 1.36% set in July 2016, the yield now sits at 1.53%. With a little more than two weeks gone in August, we have seen the 10-year drop 47 basis points and the 30-year 53 basis points. This is more movement in two weeks than we sometimes see in six months.
US 30 Yr Bond Vs Core CPI
There are many crosscurrents here. Most pundits are using the inversion of the yield curve as a forecast of a slowdown. But as we have noted in other pieces, economic slowdowns are far from synchronous with inversions. Growth continued for a year and a half after the yield curve inverted in 2006.
Looking at recent economic data, it’s pretty hard to find the slowdown:
advanced 0.7% month-over-month in July, versus an expectation of 0.3%. The (New York survey of business conditions) advanced 4.8% versus an expectation of 2.0%. is 2.2 % over the trailing 12-month level—right where it was at the end of December when the 10-year bond yield stood at 2.685% and the 30-year bond yield was 3.01%. The and the are still up double digits this year—even after this week’s turmoil. Second-quarter nonfarm productivity is at 2.3% vs. a 1.4% expectation.
This does not look like an economy that is rolling over. Nor is it.
This is a bond market that has been buffeted by a number of factors that are not U.S.-related.
Europe is mired in negative interest rates. The wisdom of having negative interest is strongly debated.