http://webreprints.djreprints.com/2812531083596.pdf
Hoisington makes a great case for lower LTT yields, down to even 2%, even as others predict the opposite.
As HB said, the future is unknowable.
Hoisington Predicts 2% US 30 Yr Bond Yields
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Re: Hoisington Predicts 2% US 30 Yr Bond Yields
It's fascinating how his observations about the recent past and near future coincide exactly with what the MMTers say and yet looking further ahead, he goes to the opposit camp and thinks the USA will go eurozone:
"John Cochrane, whom I mentioned earlier, observed that the real or inflation-adjusted government debt plus the liability of the Federal Reserve—which is just another form of Federal debt—should equal the present value of future government surpluses. When people believe those two don’t match anymore, then all of a sudden your rate structure is going to go up dramatically. We’re in an asset class that wouldn’t fare well in that circumstance. But we think we are a ways away. In Italy, you saw rates go from 4% to 7%—boom! They were in great shape at 4%. At 7% they have a huge problem, which quickly affects the rest of the world, since they have the world’s third-largest bond market. That could happen in the U.S."
The clincher is his statement, "When people believe those two don’t match anymore, then all of a sudden your rate structure is going to go up dramatically."- what mechanism does he suppose will enact a change based on any such change in what "people believe"?
"John Cochrane, whom I mentioned earlier, observed that the real or inflation-adjusted government debt plus the liability of the Federal Reserve—which is just another form of Federal debt—should equal the present value of future government surpluses. When people believe those two don’t match anymore, then all of a sudden your rate structure is going to go up dramatically. We’re in an asset class that wouldn’t fare well in that circumstance. But we think we are a ways away. In Italy, you saw rates go from 4% to 7%—boom! They were in great shape at 4%. At 7% they have a huge problem, which quickly affects the rest of the world, since they have the world’s third-largest bond market. That could happen in the U.S."
The clincher is his statement, "When people believe those two don’t match anymore, then all of a sudden your rate structure is going to go up dramatically."- what mechanism does he suppose will enact a change based on any such change in what "people believe"?
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
Re: Hoisington Predicts 2% US 30 Yr Bond Yields
I was thinking....as the size of the overall size of US treasury debt outstanding grows, does its upside price volatility decrease?
Gold seems to be a very volatile to the upside because you have a very small market that spikes when a relatively small amount of the worlds money flows into this particular asset class.
In contrast, the US treasury market seems to be so large that prices even at the long end of the curve require a much larger flow of money to spike the price.
If outstanding treasury debt continues to increase over the years will the upside volatility of this asset class continue to decrease? It seems like a simple law of supply and demand between the size of the US treasury market in relation to all other potential investment asset classes. Does anyone have any data about the ratio between these two over the last 10 years?
Gold seems to be a very volatile to the upside because you have a very small market that spikes when a relatively small amount of the worlds money flows into this particular asset class.
In contrast, the US treasury market seems to be so large that prices even at the long end of the curve require a much larger flow of money to spike the price.
If outstanding treasury debt continues to increase over the years will the upside volatility of this asset class continue to decrease? It seems like a simple law of supply and demand between the size of the US treasury market in relation to all other potential investment asset classes. Does anyone have any data about the ratio between these two over the last 10 years?
Last edited by doodle on Sat Dec 31, 2011 9:31 am, edited 1 time in total.
All of humanity's problems stem from man's inability to sit quietly in a room alone. - Blaise Pascal