The TIP/IEF ‘inflation gauge’ is still motoring upward after breaking above the SMA 200. If this turns the 200 up along with the MA 50 it could indicate a mini hysteria about inflation.

The problem lately has been that the longest duration bonds have been relatively strong, putting a cap on yields and inflationary signaling, if not indicating deflationary pressure. TIP/TLT has not nearly kept up as 30yr yields have been a big drag over the last couple of weeks (this could still turn out to be a bottoming pattern though).

Of course, the Tin Foil Hat wearer in me wonders where some of this pressure might be coming from. Political and monetary authorities who have an interest in keeping long-term rates capped, maybe? Macro Tourist checks in with some details (last part of the article) about potential political shenanigans in the long-term Treasury bond market.

You Can’t Make This Shit Up

From WSJ:

The Treasury Department has unveiled a new strategy for managing federal debt that could ease pressures set to push up long-term interest rates and reduce a potential drag on the economy.

Under the plan unveiled earlier this month by Treasury, the department would increase the share of shorter-term debt issuance and reduce the share of longer debt issuance, ending a yearslong trend that favored long-term debt issuance.

Total issuance of government debt will still rise in coming years with growing federal budget deficits. As that supply increases, it is likely to weigh on bond prices, pushing up yields, which rise as prices fall. And Treasury yields influence other household and business borrowing costs throughout the economy, such as on mortgages and corporate bonds.

The Treasury’s new approach will shift some of that upward pressure on yields to shorter-term debt and away from longer-term debt.

That last sentence is key. What again was Operation Twist’s main goal as stated by the Fed itself? To “sanitize” inflation by driving up short-term yields and holding down long-term yields by selling and buying these maturities, respectively.

Call it what you will, but it is another proposed form of bond market manipulation and whether or not 30yr yields get to the Continuum’s limiter nearer-term, it could actually serve to aid our longer-term plan, which is for said yields to be limited at around 3.3%!

The greater point is that these manipulators can look at a chart just like you and I. They can see that something (bond yield secular decline) has been in place for decades and that something else (secular financial/economic growth) is probably dependent upon it.

Operation Twist’s goal was to sanitize inflation and by another method (issuance as opposed to bond selling and buying) the same effect seems to be getting schemed up at the Treasury Department. I mean, the Fed is tapering out of QE, so they can’t very well literally implement Op/Twist Part 2, part of which required balls out buying of long-term debt.

On the macro view, the implication of the new scheme is for a flattening of the yield curve, except that… this…

Operation Twist got the party started, to begin with, years ago at a very elevated and dire yield curve level. How far does Mnuchin plan to cut the meat to the bond manipulation bone? What will be its efficacy? Does anyone really have a method of quantifying the effects now that we’re years into uncharted territory of bond market manipulation? I have few answers, but lots of questions. I don’t think the bond schemers have answers either, and that’s scary when you think about it. They seem to be just kicking the proverbial can.

The yellow shaded areas on the 10-2 yield curve chart above are the economic booms, inflationary or otherwise. The white areas with the curve steepening? Not so much. Treasury’s plan seems pretty desperate given that the boom is indicated to be a later stage.