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Sep 07

US 10yr Treasury bonds at record low

Source: Federal Reserve

I’ve been a little slow on this, but last Friday US 10 Year Treasur bond funds hit their lowest point on record???, well at least since the start of 1962 which is how far back this Federal Reserve data went.

What does it mean? Possibly a few things. Firstly, inflation is a non-issue as you would normaly expect bond yields to increase in the face of high inflation. Deflation is more of a concern as US continues to replicate the Japanese experience. So in effect this low bond yield also means that the US economy is weakening and heading towards recession (many would argue that it neverreally came out).

Supporting the view that the US is most likley heading into recession is the following chart that I’ve borrowed from the Zero Hedge blog around a week ago.

Source: www.zerohedge.com

What is shows is that every time since World War 2 when US year on year GDP growth has dropped below 2% it has entered a technical recession (i.e. when GDP growth drops below 0). I think it was a week or two ago that Year on Year GDP growth was downgraded to below 2%…clearly not a good sign for the US economy moving forward as a rebound from here would be unprecedented.

 

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