Daily Outlook

Apocalypse Now: U.S. Treasury Bond Yields Now Have Negative Rates

In a bewildering sign of economic danger ahead, buying U.S. government debt now yields negative rates. The bond yield on one-month and three-month U.S. Treasury bills dropped below zero Wednesday. It’s another ominous first for U.S. financial markets in the wake of coronavirus.

America, the world economic super power ever since World War II, now has negative rates on Treasury bonds like the Eurozone and Japan. It’s not just the damage caused by coronavirus that led us here. It’s the massive, system-wide risk taking that put America in a weak position to absorb such a crisis.

After the 2008 subprime mortgage crash spilled over into a financial crisis, it caused a global credit crunch. The result was a painful Great Recession. Financial authorities responded with a show of “financial stability” programs to implement a policy of “macro-prudence.”

But the one, true macro-prudential measure that could have saved America much of the economic tribulation ahead would have been gradually tightening the money supply as the economy recovered. Instead Washington continued issuing Treasury bonds to pay for massive budget deficits caused by overspending tax receipts.

Meanwhile, the Federal Reserve continued to expand the money supply, pumping up an “everything bubble” of colossal debt at every level of the economy.

Consider what that means for the future of the American economy. Rather than buy equities at a steep discount, they’re piling into Treasury bonds with negative rates. That means they think they’ll get their money back, or even make a profit selling it to the next investor. That means financial markets just issued a terrifyingly bleak vote of no confidence in the U.S. economy. We’re facing a recession ahead unlike any living American has seen in their life time.

Apocalypse Now: U.S. Treasury Bond Yields Now Have Negative Rates, CCN, Mar 25

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