Don’t Forget About The Plague

Don’t Forget About The Plague

"10-year US real rates are now -4.6%," BofA's Michael Hartnett wrote, in the latest installment of the bank's popular weekly "Flow Show" series. Over the past two centuries, such extremes "have been associated with panics, inflations, wars and depression," he added, referencing the annotated figure (below). Maybe it's just me, but sometimes it feels like the cadence we employ while highlighting various market and economic anomalies suggests we've forgotten what just happened to the world. If
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7 thoughts on “Don’t Forget About The Plague

  1. I’ve almost never met a stock I actually liked but that perfect slide down in real rates starting in 1975 has made me richer than I ever dreamed. I do luv my beautiful bonds. (Remember, different strokes …)

  2. Frankly, I think the policy mistake in 2008-9 was on the fiscal side, not the monetary side. And from then on, everything got out of whack, whacker and whacker.

    But, hey, you had to punish the people for electing a Black man to the presidency…

  3. Here is my question–if you look at the forwards, 1y forwards on nominal rates vs 1y forwards on inflation, say 5yr forward it has a terminal rate of approximately -140bps. So this is beyond what can be considered as transitory or not on the inflation question. This comes at a time when virtually nobody sees any value in owning fixed income, but clearly somebody, somewhere is buying these bonds. Maybe it is because the US is cheaper than the alternatives. Maybe it is the banks who are buying. Maybe it is LDI allocation into Treasuries to insulate their funding ratios. Honestly, it makes little sense unless this permanent word of exception aka Kocic is correct. Maybe it is the size of the debt that makes normalization to positive real rates impossible. My clearly outdated Treasury model has fair value over 2.0%, but I fully expect to be just frustrated by this. I don’t buy TINA. Bonds are expensive sure, but so are stocks, and so is credit. I really don’t get it.

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