10-Year Yield On Hold? Why?
“10-Year Treasury Yield holds as Treasury investors await new data”.
I’ve seen this headline and versions of it today. There is no need for Treasury investors to wait on economic data. Simply track the money supply, track fiscal deficits and track the national debt. When growth in these metrics outpaces Real GDP growth, inflation exists. That is to say the Dollar is devalued. Which is to say that the present value of a Dollar is LESS than the future value of a Dollar, all else held equal.
Personally, I believe that the current 4.5% yield on the 10-Year Treasury is abysmally low. How is it that a 4.5% yield will generate a positive real yield over 10 years given the way the U.S. inflates the money supply? Heck, the U.S. Government grew the fiscal deficit by 287% year-over-year for the month of October. Real GDP will be lucky to breakeven over the same period if the true cost of price inflation is backed out from Nominal GDP. It is likely that the real yield on a 10-Year Treasury will be in double-digit percentage negative territory over the next 10 years.
So yes, I would want to see a real yield on the 10-Year Treasury well above 1981 levels before the Treasury market started to make sense to me. The U.S. economy of 1981 was far, far stronger than today’s economy. The U.S. carried a national debt of $3.8 trillion in 1981, whereas today’s figure is $36 trillion - almost 10x growth in national debt, yet Real GDP has only grown 3x over the same period.
The Dollar is a short over the next 5, 10, 20, 50 years.