U.S. Treasury Yields are Up; What’s up with that?

  • Written by David
  • February 17, 2015 at 10:23 pm
  • 0
  • For several weeks in a row now, the U.S. Treasury markets have been going up in yield, down in price.

    A link below takes you to a WSJ article from earlier today (2/17/15); it reflects the movements within US Treasury market. Bond yields around the world continue to plummet and go lower, (negative in many places now) but yet we have seen a sizable sell-off in our US Treasury market over the past few weeks with yields moving in an opposite direction from global markets. This is in part, due to the fact that yields came down so quickly over the past few months, there was bound to be a bit of near-term correction. And now we have it with prices dropping over the past few weeks. Markets also seem to think the Fed will actually raise interest rates later this spring/summer.

    Overall, economic activity around the world continues to slow down dramatically, as reflected in the price of oil over the past 6-9 months. It is ‘interesting’ that the US Federal Reserve still thinks they can raise interest rates, in spite of all this data, and that the US economy can ‘decouple’ from the slowness of the rest of the world and continue to grow alone.

    WSJ: U.S. Government Bonds Pull Back Again

    ‘Worries mount over potential Fed action as early as June’


    This link below, takes you to a 26 page pdf document titled, ‘No Economy is an Island“’ written by @DanAlpert managing partner of Westwood Capital which rebukes the myth that the US economy can grow (alone) in face of other world economies in decline. The report is a bit detailed, but the takeaway is summed up in the quotation below…

    Link: www.westwoodcapital.com/wp-content/uploads/2015/02/No-Economy-is-an-Island-Alpert-021515.pdf

    Summing it up.

    As we stated last fall, price fluctuations within markets had begun to increase, (we call it volatility) to include both stock and bond markets. This growing level of price fluctuation is going to stay with us for some time, after being absent for the past number of years while the Fed was printing money; now that the Fed has stopped printing money, volatility has increased dramatically.  Here’s the link to that article, if interested: ‘Living with Higher Volatility’ http://davidgratke.com/gratke-news/living-with-higher-volatility-published-on-morningstar-com-website/

    The recent movement in US Treasury prices does not change our view of lower interest rates.  As deflation moves across the globe due to massive money printing by Central Banks, interest rates are pressured to go lower. To be sure, the near-term question is how strong is the US Economy, and can it ‘go it alone’ while other world economics falter? The US Treasury market is figuring that out right now, hence the price movements


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