First up is a link to the 5yr. daily chart for the long guy. US 30 yr. Treasury % Yield
The downward break in the yield range of 4.70 - 3.50% over the second half of 2011
in part reflects the increase in confidence the Fed would continue to maintain a ZIRP
policy for short rates. But the sharp downtrend in the long Treasury yield from 2011
through the first half of 2012 also heavily reflects a deceleration of the growth of
industrial production, weaker sensitive materials prices, a fall in the factory operating
rate and, not least, a sharp deceleration of the CPI measured yr/yr.
Since mid - 2012, there has been a minor pick up of industrial output and sensitive materials
prices. Those two factors alone account for some of the muted recovery of the 30 yr.
yield, but I suspect the major factor was the kick off of a new and aggressive QE program
by the Fed. QE is seen as bearish for the bond market because players presume it will
lead to faster economic growth and inflation. However, the rise in the long Treasury yield
has stalled recently because economic and inflation data have started to turn soft despite
the large, still relatively new QE program. Treasury players are no longer so sure that
QE will work to push the economy to faster growth and that higher inflation will result.
Sensitive materials prices have been more stable recently, and oil and petroleum product
prices have started to move back up. Thus the downward pressure on the inflation rate is
likely to ease and this plus the ongoing large QE program is likely to keep bond traders
hesitant to jump in and push yields down hard. The wild card now is whether the fresh,
weaker economic data is a fluke or not. The volatility in the long Treasury yield in the range
of 3.25 - 2.80% could continue for several more weeks as traders sort out the economic data
The current message from the Treasury market to the equities market is to be more
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!