If You Only Try To Understand One Financial Graph, This Is The One

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We’ve all gotten used to tuning out financial market noise, because it’s just too damn complex.

But something really dramatic happened this week, which caused me to want to try to translate one specific graph. Not Coronavirus. Not Super Tuesday. But a sudden, unprecedented plunge in the ‘yield’ of ten-year U.S. Treasury bonds, to a new 40-year low, as shown in this chart:

Ten year Treasury yeild graph .png

The headlines most people will hear on this are:

  • The week’s drop to all-time low yields (the interest rate the U.S. pays to borrow money) shows investors are worried about a coming downturn and fleeing to the lowest-risk investment they can find: loaning money to Uncle Sam.
  • Mortgage rates will soon hit all time lows, because they’re linked to the 10-year Treasury yield.

More important, I think, is this question: “why has this number been falling now for the past four decades?”

I’m no expert, but here’s some guesses in plain English. If you don’t like these, come up with your own. But if you care about understanding the world, spend a few minutes with this chart… it’s definitely trying to tell us something.

What could it mean? Some ideas:

In the 1980s, MTV and Ronald Reagan got global central bankers and politicians in the mood to party and let down their hair (and rates)… and they’ve stayed in the mood ever since.

Globalization, which accelerated in the 1980s, fundamentally changed what cash is “worth” (the less interest you can earn on it, the less it’s worth).

We’ve been on a forty-year borrowing and spending binge and keep upgrading to stronger and riskier drugs (ways of borrowing) to keep the party going.

The more risky the dollar is (indebted Uncle Sam is), the safer it somehow feels.

Investors have gotten less and less savvy, or more desperate, because they’re now willing to loan their money out for ten years for less than 1% interest.

Technology has driven a forty-year game of “limbo”: driving competition and deflation and making it harder for all but a few “winners who take all” to accumulate and grow capital (assets).

This can’t go on forever, and some big change is coming… because we don’t really know what happens when this number drops (and stays) below zero.


P.S. If the ten-year treasury chart doesn’t get your attention, take a look at the 30-year chart (via CNBC). As of today, investors were clamoring to loan the government their money for thirty years at the lowest rate ever: 1.29%. This presumably means they don’t think interest rates, or economic growth, or inflation are ever again going to rise above 1.29% (or at least in the next 30 years). Why?

Screenshot 2020-03-06 19.53.04.png

 

 

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