Couldn't resist posting this chart of T-bill yields, which are now trading at effectively a ZERO rate of interest. In exchange for putting your money into the safest investment on the planet, you now receive NOTHING in return. This is a measure of how high the level of panic, and how strong the demand for safety is. As I recall, there was a time during the Great Depression when short-term government securities actually paid a negative rate of interest, but I can't locate the data to be sure.If T-bill yields start rising above zero, that will be an excellent sign that sentiment is improving.
When the only way is up for T-Bill yields, does a rise really indicate sentiment improving? It could mean things have REALLY gone to hell in a handbasket and people questioning the safety of loaning money to the government and are sticking it under their mattress instead. I would also suggest net yields are already negative when fees etc are considered. The treasury bubble is ripe to pop for sure and valuations in practically every other sector look stupid. For example, the X-over going through 1000 yesterday, on a 20% recovery rate, suggests about 50% of the underlying entities will experience a credit event in the next 5 years. But remember manias always go further than you think.....but also remember that they tend to snap back pretty damn fast....see oil, dot-com for examples. I think those brave enough to chop their crummy yielding govvies into high yield, corporates and commodities will have a prosperous next couple of years. I think we agree here!
ReplyDeleteGood point. There has been a pickup in currency outstanding which may be evidence of currency hoarding, but so far it's not significant. Still, I think the main driver of zero yields is simply a frantic desire for safety on the part of big money. You aren't going to stash billions of dollars in currency under a mattress easily, are you? Big money has no alternative but T-bills.
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