 |
The recent rise in government-debt prices looked too good to be true. And with U.S. Treasury yields dipping to one-month lows, we see now that it was, as new economic reports show increased cause for concern.
Recently, I shared with you why the rise in U.S. Treasury yields was highly premature. I was referring specifically to the 10-year yields, which had jumped from a sleepy range of 1.85% to 2.00% all the way up to 2.40% in mid-March.
This move of 0.50% higher was signaling a return to stronger growth and a possible move by Ben Bernanke and the Federal Open Market Committee to raise interest rates.
“Hogwash” was what it sounded like to me — or, at least, wishful thinking on the market’s part that the (temporary) rise in yields would lead to any sort of Fed action.
Two weeks ago, I had warned that the only engine of growth in the United States thus far had been the jobs market. And even with improving news on the employment front, the U.S. GDP growth still seems pretty sluggish in the face of fiscal austerity, slowing business investment and high gas prices acting as a tax on the consumer.
Furthermore, I had warned that, given the precarious European situation, weak housing market (i.e., New Home Sales for February fell 1.6%) and tensions in the Middle East, it was just a matter of time before Treasury yields fell further … especially as the Fed does not want the long end of the yield curve to rise because that would hamper any chances of a housing recovery.
And this is exactly what has happened in the past two weeks.
Take a look at this chart of the U.S. 10-year Treasury yields. In particular, note the big rise from early March to mid-March and then the big drop that followed.
The trigger for this drop was the poor jobs report released on Friday. The jobs report was clearly disappointing, though the unemployment rate dipped to 8.2%.
Payroll jobs in March advanced a modest 120,000, which was half of February’s increase of 240,000 (originally 227,000), and 275,000 in January (prior estimate up 284,000).
The net revisions for January and February were up 4,000. The market consensus was for an increase of 201,000 for March, so the market undershot by a whopping 80,000 jobs.
This is quite significant because the recovery in the United States has hinged on the jobs market recovery, and this recent report could be the harbinger of worse news to come.
So what now — is quantitative easing (i.e., money-printing) back on the table? Will the Fed be more-relaxed with adding further stimulus to the economy? Will this stimulus come in the shape of more Treasury-bond or mortgage-bond purchases?
The markets have shown their disappointment at the Fed’s unwillingness to offer more “easy money” into the system. And although the likelihood of another round of fiscal stimulus being issued anytime soon is slim, you must be prepared for whatever happens.
Right now, there are two questions many investors are asking themselves: Will a new round of QE benefit stocks and gold? And does it make sense to go to the sidelines or to load up on emerging-market stocks?
There are several, very specific ways to play the myriad scenarios that will continue to unfold as the global economies toss and turn with the release of new data and central bank interventions. The subscribers to my Million-Dollar Rapid Growth Portfolio are well-positioned in low-volatility, high-probability plays that are designed to profit because of, and even in spite of, whatever the market sends our way next.
Find out how we’re playing the range in U.S. Treasury yields — plus get timely trade opportunities and updates on how the markets can make you money — by taking my service for a risk-free test-drive today!
Sincerely,
Monty
