This was so good on so many levels.
Long End of the Curve + Velocity:
An absolutely great dissertation on the yield curve, impact of rates, and flow through into the economy so far. So many good points here, you just need to listen to the whole conversation.
“You need the shock. What is the exogenous shock that is going to happen that is all of a sudden make the recession real.?”
Spenders gonna spend. This has been my thesis for a while. The American consumer is not going to stop spending until they are literally stopped from spending. American consumers will spend until they run out of money or, more likely, cannot get credit any longer.
Rates are impacting this already.
Hold To Maturity:
I disagree with this somewhat. Not his attractiveness of the starting yield discussion; I agree with that point.
However, if I buy a 30 Year Treasury Bond with a 5% yield, and hold it for 30 years, then my (nominal) return is literally going to be 5% every year. How would it not be, assuming the U.S. government doesn’t default (I felt I had to add this caveat, unfortunately)? Only if I look at price on a short term basis and mark-to-market or sell the bond prior to its maturity will my return vary. This is like the whole point of a bond. It is why they call it fixed income.
In my opinion, too many fixed income investors are focusing on price movements (i.e., trading) and not focusing on yield and duration. The fact that yields have come down for 20 years, has probably caused too many fixed income investors to focus on price movements. ETFs also distort this a bit for a couple of reasons. More on this later.
“Spreads have not blown out…and until they do stop saying recession.”
Yes, totally, spot on. Watch credit…especially consumer credit. See above.
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