Figure 1 shows both of these at monthly frequency, with February data through 2/21.
It could be argued that the 10yr-3mo spread is reduced due to a compression of the term premium, as deflation becomes a larger concern. The 10 year TIPS yield should not be susceptible to this sort of effect, so the fall in the real yield is worrisome. Even if the trend in the real rate is downward due to demographics, etc., this latest drop since late 2018 seems cyclical.
Great film. Over one hour and 10 minutes long. Hopefully Menzie will take my word for it there’s no vulgarity anywhere in this film.
If I had my way, this would be required viewing for all 9th graders in EVERY single school district in America. Private schools can pay for their won copy or read a Robert Bork book. I couldn’t possibly care less about their ilk.
*their own copy.
Somehow a computer gremlin made my hand hit the “post comment” button. But seriously, what I was gonna say is this is what we see with NYT and others hitting Bernie on the “Russiia helping Bernie” meme. Yes, it’s true, this “Bernie Bro” (me) is not denying the truth of that. What I am cynical about, is the timing of it after Bernie has won every primary pre-SuperTuesday, and now we’re starting in with the “Russia is helping Bernie” stories. Bernie and Gabbard both conceded that fact. donald trump did NOT concede that fact of getting propaganda assistance from Russia. So, if you concede the reality of the situation, how do Bernie and Gabbard change Facebook’s accepting of Advertising revenues from Russia?? How do Bernie and Gabbard change Russia’s government using Kansas City radio airwaves?? You can’t make them out to be the devil when they recognize reality and the Republican Senate has chosen to sit on their hands on the issue. The USA also helped Saddam Hussein at one point. Did that make Iraq stronger?? How’s that helping Saddam Hussein back in the ’80s and early ’90s working for Iraq NOW??? I’m asking questions to hopefully make people THINK a little bit, however improbable that goal is.
When I re-read this, it made me think many people will misunderstand my point (I can imagine Menzie chuckling as he read it). My point there was, the END result was different than the original/actual policy goal. In other words, just because Russia helping Bernie is designed to create confusion in American elections, it doesn’t mean that the election of Bernie has an END result of making America weaker. Any more than America propping up Saddam Hussein achieved the American goal of stopping Iraq from becoming a proxy for Iran—which is largely (though maybe not entirely) what it has become.
Putin’s goal isn’t necessarily to get “person X” or person Y” elected. It is often to create general confusion of the populace (easily achieved in 2020 USA with defunded public schools) and to create cynicism and doubt about the importance of voting. Which, again, due to defunded public schools, is an easily achievable goal.
20-Year Treasury Inflation-Indexed Security, Constant Maturity is at 0.1%. 30-year TIPS is at 0.26%. So in the long-run, we are all good. Or was that we are all dead?
This blog recently had a oldie but goodie with respect to the intellectual garbage of Paul Ryan. Ryan kept telling us unless we slice and burn Social Security and Federal health spending, then the Federal budgetary situation would be in dire straights. Funny thing – no one is telling the bond market that!
In the other hand Quality spreads tend to lead capacity utilization and are now signalling that economic growth is strengthening.
Quality spreads are giving favorable signals for growth? Do you mean spreads like this one?
Moody’s Seasoned Baa Corporate Bond Yield Relative to Yield on 10-Year Treasury Constant Maturity (BAA10Y)
Over 2% is not exactly low.
The point is that the spread is low. If the economy were weakening the spreads would be widening.
I need to check on this data. I get it from Haver
Analytics and they report that the Moody’s yield has been discontinued.
So I now use the yield calculated by Merrill Lynch.
I doubled checked using the Fred data for Moody’s and that spread is down from 2.65 in Aug,
A lower quality spread signals that bond investors think growth is strong enough that default risk is low.
I used the Moody’s data to calculoate the spread myself.
Yea 2% is less than 2.65%. But that does not mean it is low. I guess if you once paid $4 per gallon for gasoline, $3.50 would appear to be a bargain.
Checking with FRED, which reports data reported by the Federal Reserve – they are reporting the corporate bond yield for long-term corporate bonds rated BBB as late as February 20, 2020. If Haver is saying the reporting of this yield has been discontinued, may I suggest you stop relying on Haver.
Now one can take what the Federal Reserve has been reporting for the last quarter of a century and you will see that this credit spread is often less than 1.5%. Yes, it jumped to 5% after the collapse of Lehman Brothers but 2% is NOT low historically.
Come on Spencer – you are generally good at this stuff. Then again – I learned to stop trusting Haver a long time ago.
I am completely baffled by the signals the economy is sending out these days. There are upticks here and there, negative signals like spreads seem to be, and it’s all jumbled up together in a big mash-up that makes no sense to me at all. If anybody can explain what’s going on, I’m all ears.
I think a weak economy, but not one in a recession generates conflicting signal like we are seeing.
Stagnation in other words.
As always empirical food for thought–thanks. I don’t understand why you think the 10 yr TIPs wouldn’t reflect the collapse in term premia (even going negative)? Isn’t the idea that investors shun long term debt because deflationary shocks will lower real rates? So they buy long bonds as insurance?
I’m mildly surprised you mentioned deflation. I can see disinflation, but deflation would shock the hell out of me. When was the last time we saw deflation in the general economy?? I think it’s been awhile. Frankly I don’t even remember prices lowering that much in 2008–2009, unless you want to include things like housing that were grossly overpriced to begin with. I don’t know how economists objectively measure that (what the economists’ orthodoxy is on it??), but to me, if an item is grossly overpriced at whatever time frame you’re measuring from, I’m not going to include that as part of a disinflation measurement. Though I feel certain some will argue that point with me.
I saw a comment somewhere this morning that the fall in US 10 (and 30) year rates could either mean recessionary fears or super confidence in the US economy, with many making big bets on both outcomes. With today’s sharp drop in the stock market in response to the continuing spread of the Covi-19, it looks more like the former than the latter.
I saw where Goldman-Sachs downgraded expected US GDP to 1.2%.
Merrill Lynch was predicting less than 1% recently. The Atlanta Fed was predicting well over 2%.
I don’t know what to think.
Assuming you mean the Atlanta Fed “GDP Now” estimate (2.9% for Q1), it does not take into account shocks like covid 19. It is a GDP accounting exercise. The NY Fed now-cast is a top-down estimate (2.1% for Q1) which also leaves out potential shocks. As more data for Q1 is reported, now-casts should begin to reflect more of the impact of covid 19. The big banks don’t have a demonstrated advantage over the median estimate of analysts when it comes to GDP forecasts, so it may be unwise to put too much faith in the GS and ML forecasts before we see a some February data.
Wait – the stock market is down? Trump just told us not to worry about the Corona Virus as he has it all taken care of which is why the stock market boom is due to the awesomeness of Donald J. Trump who just be annointed King. Or something like that. It is had to tell WTF his latest tweet is telling us!
“Stock markets plunged around the world Monday after the number of coronavirus cases surged in Italy and South Korea, putting two more major economies at risk from a virus that has already caused widespread disruption in China. The Dow (INDU) closed 1,032 points, or 3.6%, lower, marking its worst day in two years, when it closed down more than 1,000 points twice within a week as inflation fears gripped Wall Street. On February 5 and again on February 8, 2018, the Dow’s percentage drop was more than 4% on both days.”
Oh my! No wonder Trump is mad. Stock market woes hurt the poor dude’s poll numbers. Of course Trump declared he has this all under control. Just put on those MAGA hats and you will not catch the CoronaVirus. And keep wearing those MAGA hats and the DOW will hit the Glassman-Hassett magic number 36000 – only a mere 20 years late! I guess Sammy would call this the power of optimistic thinking! Who needs the CDC after all?!
There was an Associated Press story that said Chinese scientists had found there were indications COVID-19 was transmissible through urine. I guess this means no Moscow hotel mattress pee parties for trump this week.
Trump says he has this all under control. I’m told wearing those MAGA hats makes one immune from the CoronaVirus.
pgl Wearing a MAGA hat might just work. After all, Larry David has a running gag about MAGA hats being a “people repellant.”
An interview with Larry David on Curb Your Enthusiasm!
Menzie has been extremely tolerant of me putting up off-topic comments and links on the blog, I’m hopeful he’ll humor me yet again:
It may interest one of the co-hosts of this blog that Miss Goldstein is a U.S. Navy Veteran.