The plight of bonds since the beginning of the year has been making headlines.
Zooming out a little, 3.2-3.3% on the 30yr was due to be tested…
That jump in yields from 2.95 to 3.2% over the past 8 weeks looks small in this context. What interests me is that 2.0% is going to be tested later this year — unless central banks find more candy to drop or unless President Trump promises to make something else tremendous.
But wait, Wall St says the bond market rout is going to continue and we’ll see 4.0% on the 30yr soon because inflation is starting to rise –that’s why the Fed needs to tighten, don’t ya know? I suggest you keep this chart in mind as you ponder the 30yr yield, the yield curve overall, and U.S. GDP growth prospects for the next year.
Prospects for the 30yr yield to climb to 4% and for strong GDP growth are squashed by that chart. Since the late 1990s, velocity of money, GDP growth, and interest rates have all been in secular decline (GDP = money supply X velocity of money).
Don’t look to see sustained strong GDP growth until something structural changes. Structural changes are going to be painful for years and will take buy-in from the public. I don’t see a lot tolerance for that (or really anything) these days.