I worked in the bond markets for over twenty years and specifically in the government bond markets so when I was recording my daily video this morning (Friday, March 6th, 2020) and got to the part where I report on the U.S. 10-year yield I first thought the quote from Investing dot com was wrong so I refreshed the page. After refreshing the page I almost fell out of my chair as I saw the 10-year yield had dropped 18 basis points overnight to 0.73% and the 30-year yield had dropped almost 25 basis points to 1.32%.
So as I write this post it's 11:10 am London and this is where the yields are at present:
As you can see the 10-year went on to drop just below 0.70% and the 30-year almost touched 1.25%. If you remember well up until early last week people were still wondering if the 10-year yield would break below its all-time low from July 2016 at 1.32% so the fact that this morning we touched 0.695% is shocking.
So why is it shocking that yields are falling so far down and so quickly? Normally government bond prices and especially the world's ultimate benchmark, U.S. Treasuries, are supposed to reflect stability and prices and yields for Treasuries are not supposed to move as they have recently.
What the meltdown in yields these last two weeks is pointing to, in my opinion, is the loss of faith and confidence in assets that are riskier than the supposed safety of U.S. Treasuries. After all, as former Fed Chairman Alan Greenspan once said: "The U.S. government cannot go bust as they can always print as much as they want to pay off their debts". Mr Greenspan is not wrong but I am sure he also knows that were Uncle Sam to print inordinate amounts of paper "dollars" that you'd eventually need $2'500 to buy a tall latte at Starbucks.
Of course, we are not at the point where we need thousands of dollars to buy a coffee but I think we could be on the way and what we are experiencing right now is what John Exter described as the deflationary collapse of the fiat currency system that is ultimately by government debt which he so aptly called I O U Nothings.
So here is John Exter's inverted pyramid and at the bottom of the pyramid is where he expected all the liquidity to flow into. One point I would make is that I would put silver alongside with gold at the tip of the inverted pyramid.
more about John Exter: https://en.wikipedia.org/wiki/John_Exter
*This is not investment advice
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