As my first boss, business-television pioneer Louis Rukeyser, liked to say: “Gentlemen, beware of bonds!”
He was referring to the fact that the vast US Treasury market and its price movements are a far better indicator of the course of the economy than is the sometimes-casino known as Wall Street.
The recent retrenchment in stock prices, especially among the high fliers like Tesla, Google and Amazon, has commanded the headlines, but underneath the carnage in tech and biotech is another remarkable trend that bears watching.
After Janet Yellen’s taking over of the Fed Chair position and a 35 percent drop — now at $55 billion — in the amount of money the central bank is printing monthly to sop up Uncle Sam’s obligations, interest rates on 30- and 10-year Treasuries have tanked.
Yes, at a time when anyone with even an online economics degree could convincingly argue that rates have to be headed higher, long bond rates have fallen to their lowest levels since last summer — a time, you may remember, when former Fed Chief Ben Bernanke was backing away from any speculation that his bank was ready to taper its bond-buying crusade.
So what to make of the fall in Treasury yields in recent weeks? To be sure, some of the money coming out of the stock market is going into the so-called “safe haven” of bonds, as is often the case.
Not surprisingly, the rally in bond prices and drop in yields come at a time when nearly every bond bull on Wall Street has turned negative on the asset class.
Yes, the stock market swoon will attract the most attention, but it is the course of the bond market that will be the most telling for most Americans.
If interest rates continue to decline, it’s a signal that the global “recovery” has wilted yet again.
The only difference is that this time, the Fed will have very few rate-cutting tools at its disposal.