Wednesday, December 10, 2014

30-Year Treasury Yield Prediction for 2015

Credit Bubble Stocks is offering an 80% confidence prediction game for 2015. I therefore thought I'd offer some supporting evidence for one of my predictions.

I predict that the 30-year treasury yield will be below 3% for all of 2015.

Click to enlarge.

I have 80% confidence. Here's what I think the remaining 20% looks like.

There's a 5% chance the long-term trend breaks far to the upside in 2015 and my prediction would therefore look laughable in hindsight. Since the data is so noisy, the break in the trend might not even become obvious until years later. It would, however, get more and more humorous for those rightly wishing to heckle me. Heck, I'd be heckling me too.

There's a 5% chance that it pops on up close to 3.5% in utter short-term defiance of my prediction. It would be especially disturbing if it did it in the first week of January, as that would ruin my prediction the moment it got started. Game over.

There's a 5% chance that it pops just over 3% repeatedly throughout the year as a sign from the Gods of Hubris that I overstepped my prophetic authority. 3.01%! Bam! 3.04%! Wham! 3.02%! Zap! 3.05%! Pow! Picture old-style Batman. That's gotta hurt.

There's a 5% chance that something will really surprise me. Perhaps a parabolic trend forms or something even more bizarre. That would probably terrify not just me, but everyone else as well.

In order for my prediction to come true the yield needs to say below the blue line for just a very small moment in time (that last little interval on this long-term chart that spans from 2015 to 2016). I was tempted to go with an average for the year, but this should keep the game more interesting.

In any event, I should be getting off to a good start. We're just now falling below the blue line. Momentum, a long-term trend, and recent oil price movements would all seem to be tailwinds. As for a potential rate hike by the Fed, bring it on (although it would ruin another of my predictions). Heck, take it on up to 5% and watch the 30-year treasury yield plummet. There's nothing the long-term treasury market likes more than a Fed hawk on steroids. It's been awhile since we've seen one, of course.

This is definitely not investment advice. You don't want to be making investment decisions based on 80% confidence levels of random anonymous bloggers on the Internet! Trust me on this! And if you do trust me on this, stop it. You should not trust random anonymous bloggers on the Internet! Hahaha! :)

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

U.S. 30-Year Bond Return Passes 25% This Year Before Auction

This year’s rally is raising concern Treasuries are becoming too costly.

There appears to be two constants in treasury life.

1. The constant decline in yields.

2. The constant concern over the constant decline in yields.

I think this can be summed up with a quote.

Everybody complains about the weather, but nobody does anything about it. - Charles Dudley

Stagflationary Mark said...

(Charles Dudley Warner)

mab said...

When it comes to U.S. 30 year treasury returns, I think the best is yet to come!

Impossible? The bond vigilantes? Blah, Blah, Blah!

Global deflationary depression seems much more likely than runaway global inflation.

Yields can't go any lower! Bullsh%t! Yields are lower in Japan and Germany and still trending down.

Stagflationary Mark said...


Stephen Roach was just on Bloomberg talking about the Fed normalizing interest rates.

The only thing "normal" that I see is that rates have been falling for 30 years regardless of what the Fed does or doesn't do.

As seen in the chart of this post, the 30-year treasury yield couldn't be any more normal than it is right now. It's currently sitting right on the long-term declining trend!

We're not Japan though! Interest rates must rise for some magical and/or mystical gut feeling theory, lol. Sigh.

On a scale of zero to infinity, is 3 small?

How about 30? Or 300?

If 300 is huge, then what is 3 trillion?

Perhaps we shouldn't attach adjectives to numbers unless we can grasp what they mean!

Normalize! Bah!

mab said...

Stephen Roach (from Morgan Stanley). Good grief. Another retread eCONomist who makes the rounds for the ministry of truth.

As a point of logic, how can these "experts" talk about the Fed normalizing rates and bond vigilantes?

Same bulsh%t, different "expert". Whatever, it pays well!

Nathan said...

When looking at the Total Household Net Worth as Percent of GDP chart at CR I can't help but see the three peaks since 2000 as anything but Baby Boomer navel gazing - "We're rich, right?"

IMO net worth as a percent of GDP is something of a cultural invariant, much like tax receipts as a percent of GDP (e.g. compare Germany to Greece). Deviations from the natural level only make sense if there's been some fundamental shift in the way a society works. AFAICT nothing like that has happened.

CP said...

Everybody complains about the interest rates, but nobody does anything about them.

Stagflationary Mark said...


The bond vigilantes are stormin' the castle again!

OMG! Raise the drawbridge! Drop the hot oil on them as they swim across the moat! Dispatch the archers to the towers!

What? There are only three in the army? They are all unicorns? Belay those orders!

Light the Candy Mountain sign! Cue the music! Prep the operating room! Wake up the kidney specialist! ;)

Stagflationary Mark said...


"We're rich, right?"

I talked to a neighbor near the peak of the housing bubble. I said something like, "How about that real estate market?"

You should have seen his eyes light up. It also produced a big smile. He said something like, "I know!"

As I walked back to my house I couldn't help but think it was the same one I bought in 1997. I didn't think it looked all that different. Since my property taxes had been going up at an alarming rate, I didn't actually feel better off. And if taxes continued to rise into the distant future, I would eventually be forced to sell my house and downsize.

Two people. Two entirely different reactions.

Stagflationary Mark said...


The complaint box is now fully automated.

The paper is bleached, sorted, bundled, and stacked using state of the art equipment.

It is shipped to a special facility. The paper is cut into small rectangles, printed with green ink, and then deposited into the banking system.

The more we complain about rates being low, the lower rates go. :)

Anonymous said...

I wonder if wage growth tracks interest rates ? If so, look out below.

Stagflationary Mark said...


Yeah. I don't think I'd be making this prediction if I thought wage growth would be 10% or more.

Unless that wage growth was only going to the wealthiest who had an inclination to buy long-term treasuries, of course.


CP said...

Right up our alley:

Stagflationary Mark said...


Did you hear Shiller recently?

December 10, 2014
Robert Shiller On Stocks: ‘I’ve Been Wondering If I Should Pull Out’

I worry about valuation in the stock market. And I’ve been wondering if I should pull out. But I have not. And in fact I’m still thinking that even at the CAPE ratio of 27, the expected return is still higher than you expect to get on either housing, on real estate, or fixed income. So it still seems like- I feel a little trepidation because I know my own indicator is looking kind of scary. I wouldn’t over go into the market, but I wouldn’t be completely out either.

I really like Shiller, but I think he should have a little more trepidation if he believes in his own predictions.

December 31, 2010
Robert Shiller's Bold 2020 Stock Market Prediction

Using long term analysis, Professor Robert Shiller, macromarkets chief economist at Yale University and the co-creator of the S&P/Case-Shiller Home Price Index, told CNBC on Friday that the S&P 500 may reach 1430 by the year 2020.

We're 600 above target and 5 years early!

I'm worried and I don't even own stocks!