'Bond vigilantes' are saddled up and ready to push rates higher

Discussion of the Bond portion of the Permanent Portfolio

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ppbob
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'Bond vigilantes' are saddled up and ready to push rates higher

Post by ppbob » Mon Feb 12, 2018 1:04 pm

There's reason to be concerned about bond vigilantes, who are no longer under "lock and key" and are free to push yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday.
...
"They had been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields," said Yardeni, president of Yardeni Research.
...
Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law.
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And late last year, the Republican tax cut was enacted that will add more than $1 trillion to federal budget deficits over a decade.

However, Yardeni isn't convinced the deficit will have a big impact on the bond market.

"You look back historically and the deficit really hasn't been as influential as you would think in determining the bond yield. It's really been much more inflation," he said.

However, he doesn't think inflation is coming back.

He ultimately sees the 10-year Treasury hitting 3 percent or 3.5 percent. The benchmark note was at 2.838 on Thursday, after hitting a 4-year high on Monday when it flirted with 2.885 percent.
https://www.cnbc.com/2018/02/09/bond-vi ... rdeni.html

You know what they say about predictions and your anatomy.

I am showing my age but I remember watching Jim Grant come on Louis Rukeyser every Friday to excoriate the deficits and promising revenge. Those were the days.

So where are the bond vigilantes? Maybe they are like me getting excited about 1.8% 6 month T-Bill rates that are still below inflation.
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Cortopassi
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Re: 'Bond vigilantes' are saddled up and ready to push rates higher

Post by Cortopassi » Mon Feb 12, 2018 10:21 pm

boglerdude
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Re: 'Bond vigilantes' are saddled up and ready to push rates higher

Post by boglerdude » Tue Feb 13, 2018 1:15 am

Shame Mish changed his site, no more email updates.

The MMT perspective
http://bilbo.economicoutlook.net/blog/?p=38040
ppbob
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Re: 'Bond vigilantes' are saddled up and ready to push rates higher

Post by ppbob » Tue Feb 13, 2018 11:56 am

Mish is full of it as usual.
Mish:
Fundamentally, there is no way to dump holdings to enforce "fiscal discipline" because someone has to hold every bond issued until it comes to term.
Of course there is a way to "dump bonds." You panic sell them to someone else who pays a lower price than you or the current market. So the market price of the bond decreases and the effective interest rate increases. The next time the Treasury has to roll over a maturing bond the new buyers only pay the current market price of the term of the bond and the effective interest rate the Treasury has to pay increases.

The rest of the article's noise about short positions is just speculation. And besides, what is the difference between opening a short position and a "bond vigilante"?
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I Shrugged
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Re: 'Bond vigilantes' are saddled up and ready to push rates higher

Post by I Shrugged » Tue Feb 13, 2018 7:22 pm

I love the Jim Grant comment!

Now I wonder what Gary Shilling has to say.
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Re: 'Bond vigilantes' are saddled up and ready to push rates higher

Post by boglerdude » Wed Feb 14, 2018 5:12 am

Shilling expects 2% on the 30 year eventually. A Japan-like future. Unless theres war.

http://www.thinkadvisor.com/2018/01/05/ ... -inflation
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