Keynes not considered a Prophet in the land of his birth
Krugman not considered a competent data downloader in the Newspaper which employees him.
Writing about the new slashed budget proposed in the UK, Landon Thomas Jr sees invisible bond vigilantes
” bond market demands to follow through on promised austerity plans.” If this means anything it means that, before the announcement of the austerity bond prices were unusually low and/or falling sharply. In fact, bond prices were extraordinarily high.
“If you look at the real yields available in index linked gilts, even out to 2017 – seven years time – the real yield available on a index linked gilt is close to zero. That is telling you that rates are going to stay very low,” he claims.
“When people are using an historic onset to base where 10 year gilts should be, the zero real yield is a very unusual situation, it would typically be closer to 2.5 per cent. Unless you are willing to say that the real yield is wrong and, as such, argue that the BoE are about to start hiking rates, I don’t think you can say that gilts are inevitably going to give you a poor return.”
Looking ahead, Mr Apel
Most bond traders might be claiming they are worried about the deficit, but, if so, they are lying. The bond market says that the default risk is miniscule.
I propose we take up a collection to buy Mr Thomas a subscription to the New York Times.
bonus link to Peter Dorman Via Mark Thoma
I think you miss a link in this. Both UK and US bond markets are looking at another round of QE. Simple, cenral banks will buy bonds in the market. They will do it in large amounts and for a sustained period.
But you know that. And if you do, so does every bond outfit in the world. So of course bond markets are high. It is just supply and demand at work. QE has added a very big player on the demand side.
Keep in mind that this has never happened before. The fed is in the process of monetizing 3-4 trillion. There is only 9 trillion out there so they are the new catagory killer. An interesting stat: The amount of debt with maturity ten years or longer is $550b. The new qe will be for a trillion. The fed will be buying up substantial portions of our long term debt. So bond prices reflect a very distored supply and demand situation.
It is dangerous to make connections with bond prices and tough fiscal choices. The vigilanties, folks like the IMF, have said that deficits in excess of 10% on a sustained basis will lead to problems. That reality drove the choices. The same choices we will face in the next year.
There are no vigilanties in the bond market. They are all opportunists. They only go where they are repected.
“70% of trade positions are held for an average of 11 seconds.”
Ok, they are talking about stocks, but I’m fairly certain the private sector bond trader holds 10 year treasuries for an average of 10 days.
There are no bond vigilantes because they all turned into goldbugs.
Of course the conclusion Krugman draws from all this is investors like zero return on their money, and they do it because they are big fans of government spending. Natch.
Also, bond traders already completed frontrunning QE2. The 10 year yield was 2.55% prior to the Fed disscussing QE2 in public. The Fed estimated a trillion would push down long term yields 20 basis points. The market almost immediatly ran the 10 year treasury to 2.35%. The seemed to have sold off already, not even waiting for the Fed announcement on Nov. 3. We are back at 2.55%
Maybe the Beige Book release a couple days ago showing a lukewarm economy gave traders cold feet? How can the Fed justify a trillion in QE if the economy is growing, but at only a moderate pace?
BTW, QE does not create jobs.
Here Trimtabs surveys what our happy money managers are really saying. Ironically, their solution to buying something they don’t like is to lever up and by more of it, in hopes of juicing up returns. After all, going out of business isn’t really a serious option for these guys.
Only 31% of Hedge Fund Managers Bullish on S&P 500, According to TrimTabs/BarclayHedge Survey. Managers Also Bearish on 10-Year
I think you are overlooking the minor fact that the IMF and the bond market are not the exact same thing. If Thomas had said that Cameron, Clegg and Osbourne (sp?) were afraid of the IMF, I would not have objected.
You attempt to explain why the bond market is not sending a warning, but don’t argue that it is sending a warning.
You seem to say that it is silly to look at the bond market. Somehow you seem to think this is a criticism directed at my post. It seems to me that you object to Cameron et al as described byThomas on the grounds that one shouldn’t look at the bond market. In my post, I don’t suggest looking at the bond market. I just criticize looking at the bond market while also saying that up is down.
Personally, I have no faith in the bond market. Influenced by my work with Brad DeLong et al. (in which my personal contribution was minor) I have no respect for markets as aids in forecasting. Brad DeLong has so much less influence on the thought of Brad DeLong. No one has ever accused him of being modest, but evidently I have a very very high opinion of him.
I don’t see any connection between what you wrote about Krugman’s alleged conclusion and anything which Krugman has ever written.
As far as I know the USA is not the UK. Also 2.55 is a very low 30 year interest rate, and an explanation of why Thomas’s assertion about warnings from the bond market is false doesn’t make it true. In my post, I didn’t say we should pay attention to bond markets, just that we shouldn’t claim that prices are going down when they are going up.
Krugman blogs often that the bond market is sanguine, and that he says is evidence that the US Treasury, US Congress snd US Fed can do much more of all the good they’ve done so far.
I already posted why bond prices are going up (yield going down). If you and Krugman think now is a good buy and hold entry point for the next 10 years, then I’m sure both of you are selling your gold and loading up on Treasuries and Gilts at this very moment.
What does holding for 10 years have to do with 10 year notes??
Somebody is supposed to do it.