Weekend update; Keeping perspective on UST yields, inflation, and inflationary expectations

The yield on the 10-year TIPS continues to drag along the bottom of its long-term trading range; The 10-year UST yield continues its long-term downward trend; the 10-year breakeven inflation rate is coming off its long-term resistance
The explosive growth in the Fed’s balance sheet should be put into perspective; Perhaps the Fed is rightly concerned about an inflationary growth slow down.
In a centrally managed UST market, we can see how the inflationary expectations (five- and 10-year expectations) in the fixed income market diverge from the actual CPI data (red). Inflationary expectations are less predictive of the actual outcome when the Fed manages the yield curve.
The long-term downward trend of the 10-year UST yield is still intact, and based on these data points, I expect the yield to trend between here and 75 bps over the next couple years.
Though the small speculator correctly started building a net short position during the sharp rise in yields early in February, much of the current short position trades were added subsequent to the rise in yields and collapse in the futures price. Thus, many of these traders are underwater here and if yields sink further we could see a capitulation. This would help the 10-year to rally further.
The charts don’t lie; We were predicting a drop in yields as the 10-year UST yield lost the 50-day sma; then the 100-day sma, and now a test at the 200-day sma (1.256) looks like a lock.
I see a test of the 135 level on the front-month 10-year futures as a logical next step over the next week or two (perhaps sooner if the small specs get spooked)

 

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19 thoughts on “Weekend update; Keeping perspective on UST yields, inflation, and inflationary expectations

  1. If anyone wishes to email me, he or she can contact me at chrispirnak@yahoo.com. I have had this email address for 24 years. People still use Yahoo.

    I stopped checking the other email address for the website.

  2. Those against taking the Covid VAX should take lessons from the French and Greeks who protested against government mandated vaccines. There is hope for those who wake up. I doubt this will happen in USSA.
    What is really disturbing is that the US mainstream media is trying to paint a picture that those without the Jab are getting the delta variant covid and only those without the Jab are getting the Covid. They are painting a picture of the least vaccinated states getting the biggest increase in Covid Cases. By the way Zero Hedge posted a similar article parroting that argument. Another reason NOT to believe Zero Hedge and never follow the news on Zero Hedge religiously.Zero Hedge relies on fear porn not objective news.

    In reality the fully vaccinated are still getting the Covid 19 and its Delta Variant. Just look at Israel which has the highest vaccination rate in the world. Their covid cases are rising and it is happening to the fully vaccinated. Don’t forget those Democrats who fled Texas of which 3 of them were diagnosed with the Covid and they were fully vaccinated by the way. I am surrounded by family and bosses that say I am stupid not to get the VAX. I would not try arguing with them as it is useless and they are so brainwashed to the point that will not hear facts that contradict their Pro VAX argument. If you only listen to mainstream media(and Zero Hedge) you will not get an accurate picture.

    At first, I was hesitant to take the VAX because of the new science behind it. It was prayers to the Lord that guided me to hesitate even though there were no stories of serious side effects. Now comments about the serious side effects of the VAX are all over the place except mainstream media. This confirms my suspicion why this Covid VAX is bad.

    What the anti VAXxers need is to hear arguments and facts that confirm their case to bolster their own confidence and not get talked into taking the VAX by people around them.
    If you want serious argument points against the Covid VAX check out this link:https://nojabforme.info
    Also check out Clif High’s twitter site:https://twitter.com/clif_high
    Then there is rense.com

    At least hearing the reasons for not getting the VAX from other sources will bolster ones stand against the fear tactics used by the sheeple and mainstream media. Remember this: You should not sacrifice your God given body for the so called”Social Good” . Taking the VAX is only good for those who want to extinguish you and prey on you.

    1. You make some great points. I no longer try to discuss the issue with others unless they bring it up.. look at the pro-vax camp and their logic errors and inconsistencies; the non sequiturs and circular logic that is employed. How can we even debate the issue when we are dealing with such a highly charged and emotional subject with people. They really have become irrational. Moreover, those who’ve gotten vaccinated, have a highly charged backfire effect, and will become even more staunch supporters of the vaccines. They are the Lost. I mentioned the advertising money spent by car companies. It’s effective, because very rarely do I’ve come across a person who just paid a lot of money for a car and will complain about it. There is the same mentality about this vaccination campaign and that was developed from the top. There is a highly charged vested interest for those who have already received the jabs. This is why we see so many instances where someone has an adverse reaction and they still are glad they took it.

      We see the heavily partisanized confirmation biases that have been engineered by the upper echelons using their media and appointed Judas goat change agent like Alex Jones, to make it into a political issue. They then can paint the states that have spikes in covid to conform to Trump supporters. Meanwhile, Trump is a bigger promoter of the vaccines than Biden.

      This is just like the textbook propagandized Nazi Germany or Bolshevik Russia. There is no difference and they all censored the media and information heavily. I tell people I will never be vaccinated and I lay out all of their cogent points and discuss it in a logical manner. I lay out all of the observations you make and that it provides absolutely no protection. None.

      Good it has become a political issue and it’s trying to convince the Democrat to vote republican. It can never be done.

  3. The 10-year keynote futures just hit 135 and then some. That was taken out quick. Lots of short covering.

  4. https://en.m.wikipedia.org/wiki/Battle_of_Tours

    Jesus put his foot down with the religion of Islam and made certain that Europe was not overcome by the bloodthirsty ishmaelites. The northern remnants of Israel settled in Europe and God’s guiding hand made certain that eventually Christianity would prevail in the West. That’s because the West was founded by the northern Israelite remnants. God does work in amazing ways.

      1. It’s too late for most people. They’re under some sort of spell and they’re walking right into that buzz saw. I saw a video of a vaccination center with the people waiting out in line to be vaccinated, and they rolled a woman out convulsing in a stretcher, and they still waited to be vaccinated. They all looked at her as she was rolling out of the facility like they were cattle and they just looked at one of them being take into the slaughterhouse. How anyone could take these jabs given the lack of credible evidence of their efficacy and the worse, is beyond me.

        The full court press to be vaccinated has been waged by those who have already been vaccinated. We see the videos where people have been injured and they still tell the others to be vaccinated. Not just that we have a political confirmation bias engineered in the mainstream and Patriot press, we also have the backfire effect from those who have already been vaccinated and are demanding that everyone else be vaccinated and be part of the movement.

        Deep psychology at play here and the psychology engineers at DARPA were quick to exploit partisan politics to achieve their Hegelian dialectic solution.

        I have read that car manufacturers spend 60 to 70% of all of their advertising dollars and gear it toward those who already bought their cars. On the surface, this sounds counterintuitive, but it does make sense. Very rarely do I come across people who just plucked down a big chunk change on a car and subsequently bash it. The advertising dollars are effectively spent, and these people will go out and recommend this car to others. This is exactly how the supposed covid vaccines have been marketed. The first avenue has been through partisan politics, which is why Alex Jones has been so instrumental in facilitating this process as a change agent. The second avenue is through using Madison avenue to effectively advertise to the unwashed masses of humanity who have lovingly walked into their own buzz saws.

    1. That is an excellent commentary and sermon. This hishop’s right on and asks the right questions. He is so spot on about today’s Church. People today are obsessed with Jesus being sweet and kind, but they never mention how in his anger, he overturned the tables of the money changers, which were just the ancient forerunners of the synagogue of satan. Jesus got angry, he got impatient, and there were times when he called people fools. And this bishop is correct once again Jesus was the greatest revolutionary that ever lived. He freed us out of our jail cells. And this bishop mentions that we have forgotten Jesus, at least the true one, and we’ve allowed ourselves to be put back in those cells.

      Thanks for sharing.

  5. Hi
    What USA stocks do you recommend purchasing after this correction we are having?
    Thanks for all your help and answering my previous question.
    Cheers
    Bob

    1. I don’t mean to trump Chris here. He’s the man when it comes to economic enlightenment, however I bought a bunch of TLT on Friday and sold near close today for a 10k profit.

      Every once in awhile a clear trade like this comes along. I saw it my head and put some skin in the game. It paid off. My only regret? I didn’t buy more.

      1. Nice. Congrats. TLT looks like the long bond futures. Both took out their 200 day sma. The /ZN should do the same soon. I think we may need a breather soon in the bond market though after the skharp moves. Lots of disbelief in the market, and much of this was short covering. I do like the intermediate trend though.

    2. I believe here that people are putting the cart before the horse so to speak. They see the drop in UST yields and are trying to figure out why. I think the reflation trade got way ahead of itself. Oil tanker today and so did commods. Traders are trying to make sense of rrising bond prices as a harbinger of a covid resurgence, but I downplay it when the Fed is so influencial in the market. I don’t see anything changing so to speak, and I like sticks that have been beaten down. I do also like stocks that hold up better.

      However, the Transports just suffered another terrible day and it’s chart continues to point to overall bearishness. If we are to stay invested, I would look to find stocks like staples and grocery. I still am not a fan of all those speculative play from last year. I like dividend plays. The
      Doe Transports could test the 200day sma. The chart of the Dow industrials is still intact. So are the spoos and nasdaq.

      While I think stocks are expensive, I don’t think was yet a game changer.

      However, we must become concerned as the northern hemisphere moaves back towards the colder months.

      Stay defensive here, keep in mind the covid narrative moving to winter months, and I think the reflation trade is way too tired.

      Supposedly the recession lasted only two months.

      Just because yields have been falling doesn’t mean the world is ending. That’s only the objective of the PTB. I like lower rates. It shows that this system still has some kick left to it. Imagine a ten year below 1%. Great for dividend and reit plays. Nice for real estate, especially with elevated inflation data.

  6. I just looked and the 10-year treasury just took out the 200 day SMA at 1.21%. it is a nasty red candle.

    The futures market is looking excellent today in the 10 and 30 years. Those shorts are going to be forced to cover. This is the way it always works. By definition we are to take the contra when it comes to small speculators.

    1. The 30-year Bond futures just took out it’s 200 day SMA with a vengeance. The long bond yields are really come down here.

  7. Hello Chris,
    Seems like the treasury bond market is not anticipating long term inflation. The declining yields could possibly be one of two things or a combination of both:

    1) Economic slowdown

    2) The Fed continuing to buy bonds despite talk of tapering.

    I think the agenda here is to keep interest rates low so Washington could continue its excessive spending
    and to keep asset prices high and therefore continue the wealth consolidation game.

    1. We have been just looking at the futures and chart/market action in the US treasuries market. Specifically, we spent our time looking at the tens and 30s. It was clear looking at the chart action that yields were going to come down. We warned the reader after the failure of the 50-day sma. This goes back away. Now it looks like it’s about to take out the 200 day sma. This is the only market that moved exactly the way we predicted. The other asset markets have continued to levitate. I do see oil coming down today and stocks are under pressure. But with the wind to the asset market’s back, through lower bond yields, I see some support to asset prices. With this said, I’d be very careful here about trading on the long side with anything. I’ve been careful ever since the 10-year Treasury started coming back down below 1.50%. We can speculate as the reasons for all of this, from the Delta variant and the consumer topping out, to other things. But the elephant in the room will always be Fed intervention through its quantitative easing programs. They are still purchasing 120 billion dollars a month and the deficit spending has been slowing up as of late. I look at the infrastructure Bill and how the amounts have been shaved off and I see that the fiscal stimulus has been dialed back. With the FED supporting the fixed income markets as strongly as it is and the federal government dialing back the mass of stimulus, the Fed’s demand in the by UST market is helping yields to fall here. If I were guessing, I would say about 65% of the drop in yields as attributable directly to the Fed’s intervention. The rest of it is because of anticipated slow downs to inflation and economic growth. With the Fed buying as much as it is, the rest of the demand is sort of inelastic. Asset managers need to buy a certain fixed amount of treasuries on an ongoing basis just for allocation and liquidity purposes. This doesn’t leave a lot of supply left for the rest of the world.

      I do notice here in the states that mortgage rates are back below 3% to about 2.85%. The spread between the 10-year treasury yield and the 30-year conforming mortgage is narrowing. We predicted this a long time ago.

      1. I have a hunch that the declining UST yields may be indicating some tough love coming from Washington DC as congress is whittling down the infrastructure budget. The Non President Biden is not accomplishing his socialist spending plans.

        It is a good thing that I just sit on some long term Stock ETF holdings instead of trying to trade these swings. I also keep some cash on the sidelines for rainy days when stocks do go down. I do NOT do day trading as individual investors are up against big Wall Street guys who are much more in the know. What a Uturn today with the DOW going up 550.

        1. I haven’t been day trading much in the past 2 or 3 weeks as I’ve been working on one particular house. I only really get a chance to sit down and look at it on the weekends and that’s why I put out that weekend update. Notice the bond future hit 135 and fell back. Our goal was to see that. These markets don’t go in One direction forever and we need to retrace some of these games in the bond market.

          With regards to the house I am working on,and its Zillows rent estimate, it has increased by about $800 a month in the past year. That’s about $10,000.The rent estimate went from $2,200 to $3,000 and I need to kick the tenant out as she’s paying only $1,500. I’m tired of being too nice with my tenants. Her kids trash the place, but the upshot is that I own the house free and clear.

          As far as the tough love because of Biden spending plans, it would be tough love if yields were rising. The fact that yields are falling is a green light for more social spending. I want to write an article about social spending and it’s resulting dilemmas that game theorists are confronted with when contemplating economic scenarios. It’s interesting that the top economists will look at social programs with disdain, yet recommend them when asked.

          This monetary system is perfect for the lies that are engineered on humanity.

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