Mar

21

We sit very close to an uptrend line of 35 years in the prices of the US 10 year Year Treasury (TY).

What does it signify?

a) A new world order is coming, with a breakdown below this line, keeping aside for a moment whatever the word trend is not supposed to be and thus its line?

b) Why has this drift persisted so long on the TY? What is not changed for this persistence to continue?

c) What can change to break down this persistence. Yes, let's not call it a trend line, but just a persistence.

An easy monthly chart shows it here.

Anatoly Veltman writes:

Btw, your chart data (which may be all that Chicago futures ever traded) doesn't go back far enough in actual 10y treasury's history, and thus it misses the actual chart's record low. Proper historical data will show your trendline already "broken". Not that such "break" vs "not break" makes any difference in my book.

35y was way too long to go one way. Some listers, incl. Jeff, Rocky, and possibly more, were not in agreement with me when yields were dancing around their terminal lows. I guess your concept of "drift" was appealing to them. Never to me. Again, 35y is plenty enough. I see no reason to keep pushing it, counting on "drift".

Steven Ellison writes:

A plausible reason for the trend of the last 35 years was the aging of the population in the US and other advanced economies. The demographic trend may level off at some point, but it shows no signs at all of reversing in the foreseeable future.

anonymous writes: 

A naive reading is that yields dropped because bogey-man inflation dissipated as major governments wanted it gone. Lately (2008-) there is worry about deflation. Now inflation again.

Whatever. If you have 50 years to live, maybe diversify between material goods and risk assets. Better yet, perpetuate your genes, bolster your family, and try to understand love.

In any case the financial literature's dependency on risk-free rate of returns looks like an ivory tower artifact.


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1 Comment so far

  1. Nikolas on March 21, 2018 6:50 pm

    CAn the advent of internet has some effect on lower inflation? After all we buy from the cheapest source a computer for example. 20 years ago we drove a car to 2 or 3 stores and thats was it.

    But we also have internet in egypt, turkey… so dont know

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