Normally it Would Be Preposterous to Assert Treasury Prices
would fall in such a scenario. Agreed. But we have a bifurcated Treasury market now where much of the action, and analysis of that action, is focussed on the portion of the market that is freely floated. Meanwhile, the locked up portion looms as a mountain of potential supply. While much of that is imprisoned, as I wrote yesterday, with its owners--as in the case of Japan--not all of it is imprisoned.
there is a ton of US money that will be rushing out of stocks and junk and agencies into treasuries if housing collapses.
As stocks and junk and agencies deflate, there is less capital to do all of this rushing. And, it doesn't have to rush into Treasuries, especially if Treasuries are quickly deemed no longer to be a safe haven. It can rush into cash (OK, sure, 90 day Treasury Bills). It can also rush into foreign, government bonds.
Primarily, however, much of this capital will be rushing to cover debt and outlays. Americans have zero savings, Mish, in the aggregate and are loaded with debt. The capital rushing out of assets will be needed to pay lenders as income collapses--not to lend to the government.
Americans have no capital now, in the aggregate, to lend to the government. Is that a true or false statement? Why would they suddenly have the capital in a deflationary collapse to lend to the government?
Best,
PS: Yes, in my previous post I used "prices" to talk about Treasuries rather than yields.
PPS: Now, if you think rates have to rise to prick the housing/debt bubble FIRST, that is a different argument.
I think I'm pretty much in agreement that the Bell Will Toll for the housing market when they money is still freely flowing, but no one comes to eat it. That's when things really get nasty. ANd it may be happening already. And if I recall Heinz pointed out this is how it unfolded in Japan.
LP. |
