E Even The President Is Admitting That The Yield Curve Is A Problem

With the 10-year T-note yielding around 1.62% as I write this, it's incredible to think that American bonds are, comparatively speaking, the best deal around. Or at least it's the best deal at the moment, as it's entirely possible that American bond yields could join others around the globe as the race to the bottom continues its course unabated. As Deutsche Bank has observed, investors worldwide have sunk $15 trillion into negative-yielding bonds, a portion representing one-fourth of the global bond market.

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Courtesy: Deutsche Bank, CNBC

I'm sure that governments are more than happy to borrow folks' money and get paid to do it, but I can't imagine it's a good sign when people are so desperate for a safe haven that they're willing to take on a negative-yielding investment. And don't expect this trend to decelerate anytime soon as President Trump continues to push for rate cuts and ECB President Mario Draghi bloviates that “a significant degree of monetary stimulus continues to be necessary to ensure that financial conditions remain very favorable and support the euro area expansion.”

This might be less unsettling if it didn't exacerbate multiple yield-curve inversions, which have historically augured stock-market contractions. It's not every day that we witness a Commander-in-Chief vocalizing (or, to be fully accurate, tweeting) this problem, but there it is:

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Courtesy: @realDonaldTrump

I can't recall, at least in my lifetime, a sitting U.S. president admitting that the "Yield curve is at too wide a margin." I'm not sure whether to call this progress or not, but at least we're at the "admitting the problem" stage of the 12-step program and that's a start.

A start of what? My guess is more borrowing and spending, more sovereign and individual debt, and more easing until easing isn't easy anymore. This is irrespective of who's president in 2020 - it's not a political statement, but just an observation and a call to action: hedge your bets, ladies and gentlemen, as the sidelines aren't the worst place to be right now.

Disclosure: David Moadel is not a licensed or registered investment advisor, and has no position in any securities listed herein.

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