I am a nervous Bull on Treasuries. My longer term thesis calls for lower rates due to deflationary fears. The increasing value of the dollar I don’t think jives with the Hyper-inflationary conditions that people are expecting from the Bond markets message BUT it could signal Cost-push inflation. It is definitely something I am keeping my eye on. Even though I expected YoY PPI and CPI to increase due to the extremely low readings the year prior, this report was a little above my expectations.
Looking at TNX, 3.69 is the level that I am looking at. It’s the area of a trendline that’s been in place since June and after that, a pretty big deal at 3.70, which is a trendline that’s been in place since, June of 2007. Even more alarming is the large inverted head and shoulders that once broken at a trend line of 3.80, would be a very bearish signal for Treasuries.
I would be a nervous holder of Treasury ETFs at this point and would have my finger nearby the trigger to start selling.
My thesis stands at Treasures going up in value as the starker reality is known that we will not be coming out of this in a V-shaped like fashion but in fact might double dip into recession (a scenario similar to Japan’s…look at where their bond yields stand…and they have way more debt than we do). However, we might double dip back into recession along with with cost-induced inflation that would place the economy in a stagflation scenario (something that I considered a while back..See archive 5/20/2009). However this Stagflation scenario would not be a persistent event. Higher interest rates would add another enormous headwind to the economy and would in essence serve as a vice for any further growth. As soon as the global economy started growing, the fact that there is so much debt out there (Treasuries, etc) coupled with fears of inflation would immediately push up rates and cap the recovery, a short of stealth Stagflation in that the danger is always there upon any sign of growth.
Yet other possibilities are that the market is giving us is a signal of no-confidence in the administrations ability to use the cash in an effective manner and to Bernanke’s machinations OR it’s the markets confidence in the world economy but not the USs. An interesting time indeed.
Upcoming Key Macro Events
- FOMC meets on interest rate policy July 25, 2017 – July 26, 2017
- Brazil's lower house to decide on Temer's trial before Supreme Court (on 1 corruption charge) August 2, 2017
- Last Congressional Business day before amended August Recess August 11, 2017
- NAFTA negotiations begin. August 17, 2017
- TENT: Decision to proceed on suit regarding legality of Obamacare Gov't Subsidies August 21, 2017
- (TENT) Xiangshan military forum August 31, 2017
- (TENT) Catalan Referendum for independence August 31, 2017
- ECB monetary policy meeting September 7, 2017 – September 8, 2017 Expectations are for announcement winding down of stimulus.
- Deadline to determine status of Canadian Softwood tariffs announced on June 26 September 7, 2017
- FOMC meets on interest rate policy* September 19, 2017 – September 20, 2017 Summary of Economic Projections and a press conference by the Chair.
- German Bundestag elections September 24, 2017
- Preliminary duty ruling due on Boeing vs. Bombardier September 25, 2017
- Soft deadline for firm contours of Tax reform September 29, 2017
- (TENT) U.S. Gov't Spending Bill due September 30, 2017
- (TENT): EU Summit (end of Phase 1 of Brexit talks: soft deadline) October 1, 2017
- In Spain, Catalonia Referendum October 1, 2017 Spain, Catalonia Referendum
- CBO estimates US Gov't runs out of cash Early to mid-October October 2, 2017
- FOMC meets on interest rate policy October 31, 2017 – November 1, 2017
- China's Singles Day November 11, 2017
- FOMC meets on interest rate policy* December 12, 2017 – December 13, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT) Italian National Elections January 1, 2018
- Chair Yellen's term ends (if not reappointed) February 3, 2018
- Fed: Yellen's term expires February 3, 2018
- Fed: Lockhart (Centrist to slighly dovish) retires? February 28, 2018
- D-day anniversary June 4, 2018 at 3:30 pm – 4:30 pm 1944
- Fed: Fischer's term expires June 12, 2018
- Austrian general election due by Sept 2018 September 1, 2018
- Draghi term at ECB ends October 31, 2019 ECB ends
- Term of Jean-Claude Juncker, Head the European commission, ends October 31, 2019