BREAKING….US Government bond spreads in historic narrowing

Bernanke under pressure to halt QE2, raise rates


More bad news for Osborne & King

“When you’re smiling, when you’re smiling….”


The weekly trend chart of the 30-year US Treasury Bond’s performance is about to fall below the line that has historically supported Treasuries marketing. This is a line that’s held for more than 20 years.

At the same time, the ‘spread’ between 5 and 30 year bonds is now narrower than it’s been for decades – indicating falling confidence in the safety of even short-term Treasuries. Traditional wisdom says that a panic could be triggered if that trend cannot be shown to be reversible.

Cutting to the chase, this means that there will almost certainly be no QE3 in the US….and as The Slog posted last Monday, interest rate rises are on a horizon that is much closer than Osborne and King think.

I’m grateful to a US Slogger for pointing me at the data, but I see that this morning (GMT) Bloomberg has the story too.

While many folks turn off at the sight of words like yield curves, bonds and spreads, once one has cut through the jargon, the story is very simple – and has been long-predicted here and elsewhere. Bernanke needs QE2 to buy up all the toxic rubbish that makes the US banking system prone to collapse. But pumping in potentially inflationary QE when you have a massive debt is not a confidence-booster for those from whom you’re borrowing to service that debt. Higher rates should restore confidence because they’ll suggest (1) that the US economy can now manage on its own and (2) the Fed is acting responsibly about not devaluing that debt.

In fact, neither supposition is correct. The US economic data are not good (again), and Bernanke is acting from force majeur rather than responsibility. Said to be between a rock and a hard place, Ben in reality left the hard place some months back: he’s now sitting on a rock, and boy is it sharp.

This leaves only the cliff, and the torrential waters below. But as Butch said to Sundance (when told the Kid couldn’t swim), “Are you kidding? The fall will probably kill yer anyway”.

From the UK perspective, the evidence is now piling up to suggest that George and Merv are also being forced back onto the pointy rock. Stay tuned.

6 thoughts on “BREAKING….US Government bond spreads in historic narrowing

  1. That’s a good picture of Merv: it shows him with a smirk on his face, which is exactly how I think he sees his zirp policy. It’s time for him to go and be replaced with a Governor who knows how to control inflation.


  2. I think your technicaly right.
    But you draw the wrong conclusions, because you still think somebody, anybody even, in power gives a stuff about inflation.
    Theres nothing stopping the Federal Reserve Buying the worlds entire stock of T-Bills, and then doing the same ten times over with newly issued bills the next day.

    The UK is in the same position.
    I dont know if it will be enough, but 10% year on year inflation in the UK wouldnt be that pressing for most people, especialy if its mitigated by tax cuts.
    Petrol is only what, 55p a litre without tax? VAT, cant be removed within the EU, but can be cut to 5/15 again. Employers NI, got to be the biggest hassle to business.


  3. Pingback: INVESTMENT ANALYSIS: Nothing is sacred except gold. | The Slog

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