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April 12, 2017 By Peter Boockvar

30 yr auction caps the week

Capping the last auction of the week and after a soft 10 yr yesterday, the 30 yr today was weak too. The yield was about 1 bp above the when issued and the bid to cover of 2.23 was below the 12 month average of 2.31. Direct and indirect bidders took about 70% of the auction which is about in line with the one year average. As this area of the curve is mostly driven by pension funds and insurance companies, it’s always tough to read too much into it. That said the yield of about 2.94% remains well above its level of 2.62% on the day of the election and the plunge low last July at 2.10%. It is though below the March high of 3.22%. The 10 yr yield is holding at 2.28% where it was just before the results.

Bottom line, I’ll say again that the debate over where longer term rates go from here is more than just a growth and inflation one. One must acknowledge the changing influence of the big central banks and their altered QE programs. US yields will be correlated to where German bund yields go for example no matter what inflation print comes our way here. Also, there once was a time not too long ago that the 10 yr US yield was around (give or take) the nominal GDP rate which was 3.5% in Q4 and might only be 3% in Q1. Who knows when, if ever, we get back to that but just maybe the path towards it begins when central bank balance sheets start shrinking. Whenever that might be. I remain of the belief that the July 2016 lows in global yields will never be seen again in our lifetimes.

This is a chart overlaying the nominal GDP growth y/o/y growth rate from 1981 to Q1 2000 (thus before all the central bank easing that took the fed funds rate to 1% in 2004 and of course well ahead of what went on after 2007) with the 10 yr US yield. You can see the relationship.

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About Peter

Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.

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Disclaimer - Peter Boockvar is an independent economist and market strategist. The Boock Report is independently produced by Peter Boockvar. Peter Boockvar is also the Chief Investment Officer of Bleakley Financial Group, LLC a Registered Investment Adviser. The Boock Report and Bleakley Financial Group, LLC are separate entities. Content contained in The Boock Report newsletters should not be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. The views expressed in this commentary should not be taken as advice to buy, sell or hold any security. To the extent any of the content published as part of this commentary may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. No chart, graph, or other figure provided should be used to determine which securities to buy or sell. Consult your advisor about what is best for you.

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