5.5% Rate on T-Bonds Coming, but Then What?

Jim Grant, the financial word’s adult in the room, says the bear market in Treasury bonds could last for decades. Do the long-term charts bear him out? The one reproduced above suggests that it’s at least possible that we are in the early stages of such a move. Most immediately, the chart projects a further rise in 10-year rates to at least 5.5% over the next 2-3 years, a 45% leap from the current 3.9%. If this were to occur, it means the deflationary bust I have long predicted will have to wait. That’s because rates that high could not possibly co-exist for long with falling asset values.

Think back to the real estate crash of 2007-09, when home prices across the U.S. plummeted by more than 10% per year.  This subjected property owners with 5% mortgages to crushing real rates exceeding 15%. If credit stimulus had not bailed them out and stabilized property values starting in 2009, millions of homeowners would have been pushed into bankruptcy.

All Bets Are Off

This will happen eventually when deflation ‘cancels’ public and private debts that long ago became too large to repay. For now, however, inflation will continue to rule if nominal rates are in fact headed to the 5.5% ‘Hidden Pivot’ target shown in the chart. Thereafter, all bets are off, since nominal rates could fall below 2% and still be asphyxiatingly high in real terms. The corresponding rise in the price of Treasury paper would bring about a bull market in T-bonds. That’s not what Jim Grant envisions, although the outcome, a U.S. and global economy reduced to ruin, is congruent with things he has been writing about for decades.

  • RICHARD CHARLES July 17, 2023, 8:20 am

    Well done Rick for highlighting the crux of markets today.
    On 19 May 2023 TNX broke a triple top to new highs and we were off to the races with our mutual 5.5 % target,
    which broke several boutique banks parking capital in treasuries.
    TYX now targets an even more ferocious 6.75 %.
    Having conjured some $14 T in M1 deposits since 2020 to fight debt default deflation of $294 Trillion in unfunded US debts and liabilities, no surprise there as bond vigilantes don’t quit, they just get less vocal.
    Not everyone kens the contracting market signal of M2 savings losing over a trillion in the past year to monetary heaven, or is it hell ?
    Any wonder BRICS sell US Treasuries and plane gold-backed currencies while Western Banks salivate for Central Bank Digital Control Fiat with endless war profits on passive populations ?
    Are the millions of military age men and trafficked children finally on the border political radar with Sound of Freedom ?
    Are political candidates really ready to bomb the cartels ?
    Martin Armstrong blames NeoCons running Uncle Joe, thinks markets may not resolve until 2032 after war demands drive Jim Grant’s decades long bear market in bonds.
    We are not so sure.
    In any event, energy, food and precious remain undervalued assets, while Commercial Residential Real Estate and their Mortgages (death pledges) decline and default with little media awareness yet.
    Old Testament tells us to retire debts every sabbatical.
    By that calendar we are at least a Jubilee (7X7 = 49 years) behind.
    Things getting very interesting indeed.
    Can all the kings’ horses and men put humpty dumpty back together again ?