Monday, August 21, 2023

The Bond Market Is Sending A Warning

 Those of us who are, or were, active in the professional/wholesale side of markets (eg interbank) know very well that bond markets lord over all other markets.  The daily trading volume of the US bond market is simply enormous: just amongst primary dealers daily volume averages around $750 billion for Treasury securities alone.  Add the rest of the participants, corporate and muni bonds, throw in repo and you're up to well over $2 trillion changing hands every day. Compare this to the US equity market at around $200 billion per day and you get the picture.

Therefore, what goes on in bonds is extremely important, not only because interest rates are paramount in our economy but also because size matters! - and it matters alot.

Bonds are now looking rather worrisome.  Take a look at the yield on 30-year Treasurys - chart below.  At 4.44%, the yield is at, or very near, 12 year highs. I don't care what equity analysts say, the real pros are sending us serious warning signals.

US Treasury 30-Year Bond Yield

The thing that is truly worrisome, from a long term perspective, is that bond prices have broken down from their very long term up channel going back 40 years - see below.  If you are a chartist - and many  pros are - this chart looks scary. VERY scary. 


  1. interestingly, the 30 year mortgage rates in Japan and the rest of developed Asia, is around 2-3%. Not apples to apples... but an ordinary Japanese citizen can (kinda) borrow more cheaply than the U.S. govt.

  2. By H. So can many, many more … including, day, the Italians, French, Germans, Irish…

    1. Is this normal, that mortgage rates should be the same or less than the (risk free) treasury rate?

    2. It is normal because you're comparing yen to dollar rates. Japan still has very, very low interest rates vs much higher US.

    3. seems hard to square with an efficient market. =)