Skip to comments.6% Treasury yields sooner than you think?
Posted on 07/31/2013 2:20:30 PM PDT by Bigtigermike
The Federal Reserve will lose control of interest rates as the "great rotation" out of bonds into equities takes off in full force, according to one market watcher, who sees U.S. 10-year Treasury yields hitting 5-6 percent in the next 18-24 months.
"It is our opinion that interest rates have begun their assent, that the Fed will eventually lose control of interest rates. The yield curve will first steepen and then will shift, moving rates significantly higher," said Mike Crofton, President and CEO, Philadelphia Trust Company told CNBC on Wednesday.
"If the great rotation that everybody talks about out of bonds into stocks does happen, and that gains its own momentum, you will see rates begin to back up very quickly; the Fed will not be able to control it," added Crofton, who argues that for now, "the great rotation" has been more out of bonds into cash, rather than stocks.
Under this scenario, he sees the yield on the 10-year rising to 3.5-4 percent in a "very short period of time." Thereafter, he expects yields to move to 5-6 percent over the next 18-24 months. Yields were last seen at 6 percent level over a decade ago, in mid-2000.
Crofton says that as the average investor begins to see that they are losing money on their bond portfolios, this will drive fear into the market that will feed on itself. "More and more bonds will be sold and rates will continue to go up."
(Excerpt) Read more at finance.yahoo.com ...
if the USA debt has to be financed at 6% we will be bankrupt - most of the money coming in will just pay the interest
The feds have attempted to circumvent the natural cycle of low bond yields in good times and high bond yields in bad times by artificially keeping the interest low for over a decade. Lately, the government hasn’t even tried to sell bonds to raise money, they have just had the federal reserve print money.
Not quite true. The government has been buying T-Bills and pumping money into the stock market at an $85 Billion Dollar per month rate for over three years. The split is about $45 billion and $40 billion - I forget which is which.
This $85 billion isn’t actual printed money, it’s just electronic scrip. But they treat it like money and they buy their own T-Bills, which creates some semblance of value backing up our debt; it does not. It is nothing more than a grand scale equivalent of paying off one credit card with a new one that allows a large cash withdrawal.
Not worried. I have full confidence in the ability of Obama to tank the stock market.
The US sells long term government bonds now at 2.5%
Let them rise to 6%
Buy back original bonds at a 60% discount...
Bonds have been taking a hit the past month or so, which according to my broker is due to Bernake not being clear on the continuation of QE. Wish I knew what the future holds.
Here’s what I think. The Treasury sells debt, currently at a very low rate. Lately, big purchasers of our debt, like China, have been balking at lending money to such a profligate spender at such low rates. To keep the rates low, the Fed has stepped in to buy up the difference. Sooner or later, the Fed will have to buy ALL of the new debt, because there will be either be skepticism with our government’s ability and/or willingness to pay back its obligations with anything but phony money - or, there will just be better places to invest money. The ever increasing Fed accumulation of U.S. Government debt will lead to ever increasing creation of phony money. Those holding the dollar (the Oil countries, Europe, Asia) will dump them in a collapse that will almost seem Biblical (although, after watching Europe, it will probably play out over several years as central bankers around the world conspire to prop up the dollar). Lower standards of living can be expected. Probably higher prices for everything, and social unrest, mostly from the usual suspects.
Correct. Though, thanks to the stupendous run-up in the deficit, the tipping point is probably well less than 6%. My guess its between 4-5%. After this threshold is passed, look for total panic and dumping of bonds. We’re talking rates of 10% or more for USTs and probably 15-20% for even highly rated European debt. At that point, running up deficits will be next to impossible. Basically, we’ll have to borrow just to find basic Government services. But who will lend?
The Federal Reserve may try, but it will be obvious to everyone by then that its just the Government buying its own debt. At that point, the Entitlement state will collapse.
Which is why the Powers-that-Be will try EVERYTHING in their playbook to prevent this scenario from happening.
the carter years on steroids
if we’re lucky
There's a TV show called Game of Thrones. It's not quite as harsh as the future but it will give you an idea.
Feds aren’t going to lose control of interest rates. They can conjure an unlimited number of dollars out of thin air. and buy all the debt paper they want at whatever arbitrarily low rates they choose to buy at.
The government is just printing the money, agreed. Does it count as a debt owed to the Federal Reserve, with interest? Who authorizes the printing of that money?
didn’t the Game of Thrones have a the head of George Bush on a stake?.....no thx...I don’t need that kind of leftist crap..
There is a global appetite for safe debt. When our only real competition, the EU, looks too risky the world buys “safe” U.S. debt. The US has a LOT of debt coming due over the next couple of years that we desperately need to refinance at low rates. Even if it is just the Fed buying, which they will do. Even if they need to kick the EU while it is down (behind the scenes, of course). Even if it means QE 4, 5, 6 . So why isn’t the dollar much weaker against other currencies? A race to the bottom by the world...strong currency is for losers these days. So why aren’t commodities even higher? Other than food & energy, we must still have deflation risk at a stronger level than anyone wants to admit.
IMHO it will be more like a decade of reckoning, paid for by retirees with lower standards of living and higher taxes.