Predictive Value In/Of Low Yields

The US federal government is the brokest entity the dark side of humankind could have ever conceived. And while that’s certainly the case, it is simultaneously true that our out-of-control politicians have no trouble whatsoever selling this deepening debt to a deflationary marketplace only too willing to snap up whatever is offered as if it was somehow scarce. Count me among the vigilantes, recognizing and pointing out these facts does not make me a cheerleader for the recklessness.

The fools in Congress (power of the purse, supposedly) have been able to take advantage of a situation that because of its specific properties has removed any kind of constraint on their foolishness. This is one prominent outcome of underlying, baseline deflation. Get rid of that, then watch what happens.

Bye bye deflation, hello vigilantism.

Such a categorical change has been professed numerous times over the past dozen years since the depth of the Great “Recession” shocked the official sector into action; breaking with all prior sense of proportions, first the ARRA (in the US) and then continuing, excruciatingly ineffective high deficits year after year. Eventually, everyone knows the piper must be paid.

Piper payday is always said to be right around the corner but has yet to visit the present tense. Because of this situation, and its rather unique characteristics, many have stated that the bond market itself therefore cannot and will not be the predictive engine for forecasting judgement day. Or even just the transitionary phase out from the deflationary grip.

Thus, currently low yields in 2021 are trivial, according to many. We shouldn’t care that yields remain incredibly low, factor just the selloff and the extrapolated continued direction (interest rates have nowhere to go but up).

The questions, therefore, is there predictive value in the yield curve?

Some influential researchers have said, no, if inflation is about to show up and batter the unwise then the bond market is the last place you’d see it coming (these same Economists at least admit bonds are consistent with, if not the best indicator of, concurrent inflationary circumstances).

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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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Gary Anderson 2 weeks ago Contributor's comment

Deflation may very well be the likely case.