Rates Approach All-Time Lows

Stocks are falling and mortgage bonds are improving this morning as bond investors continue to behave as if economic struggles are on the horizon. This is a very strange environment for the financial markets. Generally, bond investors are one of the greatest forecasters of recessions. With the yield on the 10-Year Treasury Note now down to 1.45%, bond holders are ignoring the notion that the red hot US economy will bypass a recession. Since that has never happened in history, it’s a wonder how so many believe it will happen. However, I don’t follow the beliefs of the masses. I continue to see a recession on the horizon. I can clearly see that the reason the economy has held is due to the Federal Reserve artificially stimulating the economy at unprecedented levels. At some point, the punch bowl will be taken away and the economy will need to stand on its own merits.  I don’t see it having the strength to do so. Not even close.

Yields on the 30-Year Treasury appear poised to close at all-time record lows. This is happening simultaneously with an yield curve inversion. Considering that an inverted yield curve has historically been one of the greatest predictors of a pending recession, this change supports my opinion that we are on the verge.  The only reason the yield curve hasn’t inverted in recent months is due to the amount of money the Fed is injecting into the short term market. The fed had been purchasing tens of billions of dollars in short term T-Bills to help keep short term yields from moving higher. Unfortunately, even this hasn’t been enough. Not at all a good sign or what the Fed was hoping to see.

With rates near all time lows, the risk / reward trade off if high. How much lower can rates go?  Not likely much. Float if you are able to closely watch the markets.