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US treasuries 20yr+ yield , up or down?
- Thread starter Ohad
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bob
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There is rampant speculation that the much-hoped-for QE3 will include maturity extensions that have them buying not just the 10Y but the 30Y also in large amounts. No doubt some probability of this outcome is "priced in," but should QE3 become a reality I think 30Y yields would drop, at least until the Fed's intentions become clear.
Three (perhaps cynical) additional observations on this matter:
(1) Although I do believe what I wrote above, I personally consider speculating on yields to be, generally, a fool's game. In the current environment, it is entirely a matter of divining what the Fed would like to have happen, and despite the rumors I'm not entirely sure that crushing yields all the way out to 30Y is something they are completely committed to doing with many banks in the US teetering. It may be that the rumor of action is all that ever materializes here.
(2) The component of QE3 that moves 30Y yields may not be announced as such, even if it is carried out. The monetization aspect of QE2 was broadly unpopular, and so the means by which the Fed takes 30Y out of the market may not be immediately apparent to the masses. For all the heat he has taken, Bernanke and his people have repeatedly proven themselves to be quite creative when they need to be.
(3) Remember that QE2, since its primary purpose was to affect interest rates (leaving aside other possible purposes such as monetizing debt, throwing some money to the primary dealers, sparking inflation to force China to loosen their currency peg, etc.), disporporationately focused on on-the-run issues. (This is where it has the most impact anyway, since these yields have a much higher impact on general perceptions of "what interest rates are now" than do off-the-run issues.) So even if you are convinced that monetization at the long end is coming, the impact on off-the-run issues may not be as large as you might think.
And, finally, just to borrow a disclaimer favored by Gregg Easterbrook, "All predictions guaranteed wrong or your money back."
Three (perhaps cynical) additional observations on this matter:
(1) Although I do believe what I wrote above, I personally consider speculating on yields to be, generally, a fool's game. In the current environment, it is entirely a matter of divining what the Fed would like to have happen, and despite the rumors I'm not entirely sure that crushing yields all the way out to 30Y is something they are completely committed to doing with many banks in the US teetering. It may be that the rumor of action is all that ever materializes here.
(2) The component of QE3 that moves 30Y yields may not be announced as such, even if it is carried out. The monetization aspect of QE2 was broadly unpopular, and so the means by which the Fed takes 30Y out of the market may not be immediately apparent to the masses. For all the heat he has taken, Bernanke and his people have repeatedly proven themselves to be quite creative when they need to be.
(3) Remember that QE2, since its primary purpose was to affect interest rates (leaving aside other possible purposes such as monetizing debt, throwing some money to the primary dealers, sparking inflation to force China to loosen their currency peg, etc.), disporporationately focused on on-the-run issues. (This is where it has the most impact anyway, since these yields have a much higher impact on general perceptions of "what interest rates are now" than do off-the-run issues.) So even if you are convinced that monetization at the long end is coming, the impact on off-the-run issues may not be as large as you might think.
And, finally, just to borrow a disclaimer favored by Gregg Easterbrook, "All predictions guaranteed wrong or your money back."
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30 year and 10 year yields will plunge big time, as chances of recession rise - yield curve flattening. The shorter term maturities can't go higher as fed is holding rates at 0-0.25%.
I believe people will be surprised how low yields on 10 and 30 year can go. My take - 30 year will be sub 2% in a year's time, and 10 year will be sub 1%.
I believe people will be surprised how low yields on 10 and 30 year can go. My take - 30 year will be sub 2% in a year's time, and 10 year will be sub 1%.
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