Dec. 3, 2021

Bonds Begin To Speak.

The bond markets are a reluctant group. Most of the time content to let their more flamboyant neighbors, stocks options, and derivatives make all the noise.

After all, we most often call the financial markets, the Stock Market don't we. We quote how the Dow or NASDAQ are doing, not the bond market.

That's because bonds don't often make the big bold pronouncements that equities or options do.

But when bonds do begin to speak, we do well to listen. Because bonds are most often correct in their assessment of our financial future.

Now, most of the time bonds adhere to a consistent pattern, called a yield curve. It's based on a simple principle, that the longer you hold on to a bond, the more you should be paid. Invest in a 30-year bond, and you should earn more than a 10-year bond.


And that's the way it works, most of the time.

But when the bond market stands up and says: you won't get any more for the long bond, than the short. That's a big deal. And that's what bonds are saying right now.

In the parlance of Wall Street, the yield curve is flattening. You will NOT earn more by investing in longer maturities.

In the extreme, you may actually receive less, if you invest in the longer maturities. That rarely happens. And what the bonds are telling you is trouble ahead.

Sit up, take notice.

Incidentally, this situation where the longer maturities actually yield less than the shorter is called an inversion.

Right now, that inversion is happening between the 20-year maturity US Treasury Bonds and the 30-year US Treasury Bonds. The 30-years, actually yield LESS than the 20.

And this strange situation began at the end of October and has continued up until today.

So it's not a fluke, not a one-day occurrence. It's starting to develop into a consistent pattern.

And although the 20 to 30-year maturities are the only place on the yield curve that it's inverted. All along the yield curve, yields are starting to flatten. Longer maturities are starting to yield less versus their short-term equivalents.

On Wall Street, this is the primary signal that our policymakers are making a huge mistake.

Essentially the mistake is this: The Administration has underestimated the drag that all of this debt they're piling on is going to place on our future economy.

Now it may sound all well and good, to pay our endless sums of stimulus checks. And to pay literally trillions to Build Back Better.

But one day all that spending today, will have to pay for. And is the sheer size of those payments that will suppress the economy.

Economic growth will be slowed because funds that could be used for expansion, will instead be used to pay off the trillions we're spending right now.

We've long ago passed, the point that the Keynesian talk about where a dollar of government debt generates a dollar or more of economic growth.

Today, as each dollar of debt is added to our nation's burden, not only does not pay for itself but, instead, just buries our hopes of future economic growth even deeper.

The bond market is speaking, loud and clear. Let's hope that someone down in Washington is listening!