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What is the Bond Market Telling You? Craig Hemke (28/05/2019)

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May 28, 2019

“The writing is on the wall.” “What is past is prologue.” “History doesn't repeat, but it rhymes.” Yada, yada, yada...

So, to the title of this post: what is the bond market telling you? Well, let's look at the current structure of the yield curve:

  • Fed Funds overnight rate? 2.40%
  • 3-month Treasury bill? 2.35%
  • 2-year Treasury note? 2.14%
  • 10-year Treasury note? 2.28%

 

Thus, the "yield curve" in the U.S. is now inverted from the short end to the long end, as overnight rates exceed ten-year rates. How and why has this happened? Well, that's a topic for another day. What does this mean, and what does it foreshadow? See this from Investopedia: https://www.investopedia.com/terms/i/invertedyield...

And this yield curve inversion is accelerating, as the U.S. Federal Reserve stands idle without cuts in the fed funds rate (the only rate they directly control). Notice that the U.S. two-year note is now at its lowest yield since February of 2018 and that the ten-year note has its lowest yield since September of 2017! And The Fed has hiked the fed funds rate FIVE TIMES in the twenty months since!

And check these tweets, too:

 

So, again, what is the bond market telling you? That a recession and economic contraction is coming. In fact, it's very likely already here! The U.S. first quarter GDP was goosed to +3.2% on ridiculously understated inflation. However, most estimates for Q2 GDP are now in the +1.0% range and falling fast. By Q3, the U.S. will likely post a negative GDP number and another negative print in Q4 will meet the textbook definition of "recession".

However, well before then, The Fed will capitulate… just as they did in 2010, when U.S. GDP fell from +3.7% to -1.0% between Q2 and Q4. The Fed announced "QE2", the US$ plunged, and the precious metals soared. The same conditions will prevail in late 2019 too. Thus, the time is now to make changes in anticipation of what is most assuredly coming.

What can you do to prepare for these events? The simplest step is to add some physical precious metal to your portfolio. And acquiring real, physical gold and silver is easy. It can be held at a trusted gold bullion storage company or in your own, personal safe. You can hold it in gold bullion coins or silver bullion bars. Take your pick. Just be sure you own some before confidence collapses, the dollar declines, and The Fed begins its next course of rate cuts and quantitative easing.

Enjoy reading this article? Interested in precious metals? Sign up to the Sprott Money Newsletter to get updates from Eric Sprott, David Brady, Craig Hemke and more.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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