Monday, August 1, 2011

Real Yields Continue to Crash

The entire real yield curve hit new lows simultaneously today.

5 Year: -0.75%
7 Year: -0.21%
10 Year: 0.33%
20 Year: 1.09%
30 Year: 1.34%

So what does this mean? The bond market thinks our short-term, mid-term, and long-term growth engines are dying. That's all. Can't say that I would disagree (especially since I've been actively betting on that outcome by owning long-term TIPS and I-Bonds).

You can now lock in a a safe -0.21% annual loss for the next 7 years and also pay taxes on any inflationary gains. That's what the bond market now considers to be a good deal compared to the alternatives.

Oops. I didn't mean to sound alarmist.

Please remain calm. There is nothing to see here.

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5 comments:

  1. Who Struck JohnAugust 1, 2011 at 5:15 PM

    And just think, today's deal successfully kicks the can over the cliff!

    ReplyDelete
  2. Stagflationary MarkAugust 1, 2011 at 5:15 PM

    Be sure to see the Real GDP per Capita post for one reason that real yields have crashed.

    The economy cannot support high real yields any longer.

    ReplyDelete
  3. Stagflationary MarkAugust 1, 2011 at 5:22 PM

    Who Struck John,

    May we live in interesting times!

    Escher would have a field day drawing global economic cliffs.

    ReplyDelete
  4. Mr SlipperyAugust 1, 2011 at 6:30 PM

    I am trying to think of an asset class that performs well in a negative interest rate environment. Hmmm. Can't think of it right now. ;)

    ReplyDelete
  5. Stagflationary MarkAugust 1, 2011 at 7:24 PM

    Mr Slippery,

    You are thinking of toilet paper no doubt since it is so soft, safe, and not prone to asset bubbles!

    ReplyDelete