Neither Keynes, Trump, Pumps Nor Priming

With rates traders still amazed at the shocking bond market response to Thursday’s blockbuster economic data, Rabobank strategist Richard McGuire chimes in and writes that the Treasuries market has undergone a “notable” change in the way it reacts to U.S. data since last year, with Thursday’s stellar economic reports seen as reducing the odds of aggressive fiscal stimulus.

You would think instead of how the Treasury market might react to stellar economic data and further leap toward reflationary selling (rising yields); after all, stellar economic data is the whole point. The market is not led around by promises of more government freebies, it is waiting (patiently) for the day when the economy unambiguously no longer needs them.

If, on the other hand, the market foresees more of the heavy arbitrary hand of “stimulus”, that’s a very solid indication that hand and what it had offered has not, nor will, overcome hysteresis; it could not have primed any pump, just the issuance of a lot of inappropriate names and confusing interpretations. 

Thus, the current situation easily explained: for now, anyway, the market sees the latest “pump priming” (including Trump’s final) as little other than the same type and character going back to when all this started therefore on the same long-run path. Possible positive effects limited to the short run, leaving unanswered the only question demanding every issue.

Lots of government, then what? If your or anyone’s answer is “still need more government”, nothing has changed.

This is stubbornly low-interest rates in a nutshell.

Given such an established pattern, skepticism shouldn’t require so much explanation. It is and has been thoroughly and empirically established as the baseline condition and expectation for nearing a decade and a half! The burden of proof has – beginning in late 2006 – swung all the way to the other side, it’s just that most people don’t know this. 

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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