NOTE TO READERS: “Global Credit Collapse Is Deflationary” was originally published as an exclusive for TalkMarkets on October 29, 2024. I have not changed anything in the article, nor is there any reason to modify or alter what is written below because of U.S. election results.
bond prices
Treasury Bonds Update
TREASURY BONDS
There is an important Treasury Bonds update you should know of. There must have been poison gas inside the Treasury Bond price balloon. It appears that bond traders were overcome with it and lost consciousness while still at their desks with their fingers on the sell key.
We know there are buyers for all sellers, of course; but, at what price? Equilibrium in the bond market is like a fantasy mirage in the middle of a desert sandstorm – it is nowhere to be found. Here is the latest chart (source) for TLT, the 20+ Year Treasury Bond ETF…
The chart covers trading activity for the past two weeks beginning with Monday, September 25th, and ending with Friday, October 6th.
During those ten trading days, TLT losses totaled almost eight percent. For anything other than U.S. Treasury bonds, that might not seem so bad, but…
These are U.S. Treasury bonds. They are a long-term version of the same securities that are considered a standard for “risk-free” investments – U.S. Treasury bills.
Yes, we know that a longer maturity has more exposure to interest rate risk. Even allowing for an understanding of that risk, though, doesn’t provide much consolation when you watch a “safe”, AAA rated, income-oriented investment that promises to pay interest annually and all your money back at maturity, go up in smoke.
Let’s not forget the “full faith and credit of the United States government” behind those bonds. That should make anyone feel comfy and secure.
BLOODLETTING OR BLOOD-DRAINING?
It took four decades for the Federal Reserve to engineer interest rates downward to near zero from north of 15% on the very same U.S. Treasury bonds that currently yield 4.7%.
In order to return interest rates to something more historically normal (we’re not there yet), we have endured three years of money destruction.
The past two weeks have accelerated the bloodletting process and the patient may not get a transfusion.
CONCLUSION
In conclusion, this is the summary of the treasury bonds update. The drop in U.S. Treasury bonds continues. The percentage drop in Treasury bond prices since 2020 now totals more than 53 percent.
The effects are felt in all markets, including auto loans, mortgages, retail consumer credit, etc.
A credit collapse (think 2008) is a very real possibility and so is a washout in stocks. No one is immune. Just ask Silicon Valley Bank.
Things will get worse before they get better; a lot worse for a lot longer.
(also see Bond Market Tells The Real Story)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
Bubblicious Asset Prices, Debt Dependency, Economic Collapse
BUBBLICIOUS ASSET PRICES
The words bubbly and delicious might be more descriptively accurate when talking about champagne. However, it is not too difficult to imagine giddy salivation among the owners of Bitcoin, or Tesla stock.
And, while some might be more stringent in their terms of definition and applicability, investors in stocks, bonds, real estate, etc. – pretty much anything with a $ sign in front of it – might want to rethink the current state of affairs as it pertains to valuation of their financial assets.