Sunday, December 1, 2013

5-Year Treasuries vs. 10-Year Treasuries

Click to enlarge.

The herd sure loves the current 1.37% 5-year treasury compared to the 2.75% 10-year treasury. Good luck on that one.

Perhaps the herd is right though. Perhaps interest rates will be north of 4% on the 10-year in 5 years as the economy continues to "recover". We can all hope and dream. Right? Okay, maybe not all. The Japanese would clearly be harder to convince. They've had more time to watch what ZIRP can do to an economy over the long-term. Sigh.

FRB: Why are interest rates being kept at a low level?

Low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses.

Most Americans love higher shelter costs. It's a fact. And let's not forget about higher priced tuition. Who doesn't love that? The more financing the better! Here's the best part. These low interest rates have not boosted the price of gasoline. It's just a coincidence that gasoline prices have tripled over the last decade or so. Can't hold the Fed responsible for that. They have no control over it at all.

February 29, 2012
Bernanke: The Fed 'Can't Do Much About The Price Of Gas'

In Congressional testimony, Fed Chairman Ben Bernanke told legislators the Fed “can’t do much about the price of gas,” after lashing out at those that criticize him for “hurting” the dollar.

Let me summarize.

Good asset prices rising: You can thank the Fed!
Bad asset prices rising: You can't blame the Fed!

Good asset prices falling: You can't blame the Fed!
Bad asset prices falling: You can thank the Fed!

The funny thing is that gasoline prices stopped going up. It's almost like the global economy is too weak to support high priced gasoline. Go figure.

So how exactly is the Fed going to generate consumer price inflation going forward if gasoline prices can't rise further and WalMart sells 32" flat screen televisions for $98? It's a puzzling conundrum of an enigma wrapped up in a mystery.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart
U.S. Treasury: Daily Yield Curve


Rob Dawg said...

Interesting (pardon the pun) that the two year treasury has not moved at all. Nothing. That's where the real gap is opening. Makes me think fives and tens are being pushed up in yield rather than being allowed to rise. Now that excess reserves are being eyed this would be a subtle way to funnel even more profits to banks.

Stagflationary Mark said...

Rob Dawg,

Since the invention of zirp (see your pun and raise you a "dirty"one), financial expert after financial expert has warned savers to avoid the long bonds and only embrace the short term crap paying next to nothing in interest.

The yield curve is amazingly steep and is exactly what the banks would want most in order to boost profits. Agreed.

Further, an inverted yield curve is devastating so it's nice to know the Fed won't ever let that happen again. This "price fixing" won't create any unintended consequences of course. You know, like an economy that someday slips into recession while already stuck in ZIRP. That would no doubt be an adventure!

fried said...

Just wanted to wish you and yours a happy, if belated
Thanksgiving, and my hopes that Honey continues to recover.

Stagflationary Mark said...


Happy holidays to you as well!

Honey is doing fantastic! She's fully recovered as far as we can tell. She's getting lots of play time.

We bought some plastic stairs. I improved them (cut out carpet and attached them as better steps). We trained her to use them and she's back to sleeping on the bed. All is well. :)

I should probably do a post on how easy it was to train her (cheese and patience) and the modifications I did to the steps at some point.

dearieme said...

Mark, I thought this might interest you.”-A-DECADE-L.aspx

Stagflationary Mark said...


Awesome link. It's like it's right out of my own retirement risk management playbook.

What if real rates fall! Been hedging against that since I retired in 1999 and thank the heavens I did. It's why I keep loading up on long-term TIPS and I-Bonds whenever I can.

I couldn't get your link to work (at least on my PS3) but I found it just the same. Here is my link to it.

Thanks for sharing!

fried said...

I agree, that link is insightful. I had to read it several times to make sure I understood it, but for those who sail against conventional wisdom, it was also reassuring.
Many thanks.