Monday, October 25, 2004

The yield on the 10-year Treasury note just keeps on falling. Good thing the seniors just got a bump up on their Social Security payments, because they aren't making squat on their bonds.
U.S. 10-year Treasury notes rose, pushing yields to the lowest in almost seven months, on concern record high oil prices will slow growth in the U.S., the world's biggest energy consumer.

Ten-year yields have fallen 93 basis points, or 0.93 percentage point, since June 14 as oil prices surged. Economists predict a 70 percent gain in energy costs this year will sap consumer spending, slowing growth in the last quarter of 2004.

"There's three things" driving the Treasury market -- "oil, oil and oil," said Jitzes Noorman, a fixed-income analyst at Rabobank in Utrecht. "The momentum points to lower yields."
Clearly the fear of inflation is completely absent from the bond market. And in this environment, why not? Nobody really believes in cost-push inflation anymore, what with US labor lying prostrate at the feet of capital for some 20 years now.

In light of these falling yields, one has to wonder whether private capital will flow into the US at all? We know there are signs that capital is beginning to sour on US government debt (net -$5.1bn in August) and especially US equities (net -$13.6bn during March-August). Will US corporate debt be next?

Of course, we can always count on our Sugar Daddy -- aka the Bank of Japan -- to bring it all home for us in November -- and even a little attention from the Russian Central Bank on the side, too.


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