Saturday, 3 August 2013

Bond yields still broadly rising

The main US equity market continues to rise, and on a monthly basis, so are bond yields. The 10yr yield has started August in the 2.60s. The important 2.75 level looks set to break, and then a quick move to 3.00-3.25%. Certainly, 4% looks unlikely this year..but not by late 2014.

10yr, monthly

10yr, monthly2,


I don't really cover the bonds/yields much, so lets end the trading week with them!

First chart, is just a simple cycle extrapolation, and is a fine reminder that despite yields 'broadly rising' across 2003-07, the equity market was rising during that time.

I remain curious about a 'hyper-bullish' escenario, which would have a peak in late 2015/early 2016. Rates would surely be in the 5s..perhaps even 6/7% - if some 'moderate inflation' is in the system - not least if WTIC Oil is challenging the 2008 high of $147.

Rising yields are not a bad thing

Despite what many in the mainstream might think, rising yields are not likely going to be the 'death knell' of the economy. Indeed, the laughable issue is that yields are still extremely low.

Even if the 10yr yield was 5%, does that even remotely qualify as 'high' ? To the mainstream, 5% is probably a nightmarish thought, but from a pure-economic perspective, 5% would actually be a good thing.

As too few recognise in this new era of 'QE will solve all the problems', low interest rates have lead to low amounts of savings. With too few savings, capital formation is hindered, and that is a serious barrier to long term economic growth.

Indeed, the longer ZIRP (zero interest rate policy) continues, the longer it will take for the US and world economy to recover from the financial collapse of 2008. Sadly, it would seem the Fed (but also other central banks) has no inclination to raise rates for many years to come.

Anyway, it was an interesting week, and if the main equity indexes do max out next week, then the bears should have a fair few 'good weeks' into mid/late September.

Goodnight from London

*Next main post, late Saturday, probably on the World indexes