real yields according to TIPS seems fairly low in historical perspective

From Econbrowser:

"High Anxiety (about Interest and Inflation Rates)

In March 2001, I was tasked to follow developments in Japanese macro policy (including monetary, exchange rate, and banking recapitalization issues). Readers will be tempted to ask what this has to do with current events. Well, at the time, Japan was facing rapidly rising net debt-to-GDP ratios (rising from 60.4 ppts of GDP to 84.6 ppts from 2000 to 2005), and was embarking upon a policy of quantitative easing in an attempt to stave off a deep recession. And yet opponents of quantitative easing worried about hyper-inflation, even as y/y inflation at the time remained mired in the negative range. I didn't understand the fears at the time; and I still don't. Now flash forward eight years, and move across the Pacific.

Recent commentary has focused on the sharp reversal in US long term interest rates [0] and the steepening of the yield curve [1] [2]. The anxiety seems to be centered on the collision between increasing supply and decreasing demand for US government debt (although see Brad Setser's recent article), combined with quantitative easing that spurs fears of debt monetization. US Federal debt held by the public to GDP ratios are projected to rise from 56.8 ppts to 73.2 ppts (end-FY09 to end-FY14) (Source: CBO, March 2009), while reserves have gone from $96.5 billion in August 2008 to $949.6 billion by April 2009 (seasonally adjusted figures, from FREDII). Of course, returning to my Japan case, reserves (actually, the "current account balance") rose from about 5 trillion yen to about 32 trillion by 2004 during the episode quantitative easing, before reverting to about 9 trillion in 2006 (Source: Humpage and Schenk, 2009). And yet, Japanese y/y inflation never really stayed in positive territory until 2008 (and it's back to negative range in 2009Q1).

Hence, I thought it useful at this juncture to review trends in long term nominal interest rates and long term real interest rates, in order to get some perspective.

Figure 1: Five year (blue) and ten year (red) constant maturity nominal yields, monthly averages of daily data. Triangles denote data for May 27. NBER defined recession dates shaded gray. Dashed line indicates sample start for Figure 2. Source: FREDII and NBER.

Figure 2: Five year (blue) and ten year (red) TIPS constant maturity yields, monthly averages of daily data. Inverted triangles denote data for May 27. NBER defined recession dates shaded gray. Dashed line indicates sample start for Figure 2. Source: FREDII and NBER.

Ten year constant maturity rates as of 27 May are back to levels of September 2008, as are the real rates (keeping in mind the distortions in the TIPS markets). The sharp rise in the nominal rates, even while real rates are only slightly above where they were in April, suggests to me that about half the nominal interest rate movements are due to revisions to inflation expectations (here's Jim's take on the inflation component to these yield shifts).

Taking the Treasury-TIPS spread literally as a measure of inflationary expectation (see caveats in the appendix here), 10 year expected inflation was 1.36% in April; as of May 27, the implied annual inflation was 1.88%, an increase of about 0.5 percentage points. The increase in the 10 year real rate was 0.26 percentage points. Of course, one would want to allow for a lot of uncertainty in these calculations, given the academic research detailing the problems with equating break-even with expected inflation (see D'Amico et al. 2008), even before the recent turmoil in the TIPS markets.

Of course, the United States in 2009 is different than Japan in 2001. One key difference is that Japan was, and remains, a net creditor. America is a big net debtor to the rest of the world, with extremely large holdings of US Treasurys by foreign private and state actors. And so, for me, I worry more about higher real interest rates (portfolio balance effects) than higher inflation. But even here, real yields according to TIPS seems fairly low in historical perspective (and roughly comparable to those prevailing during the period characterized as "the saving glut").

My bottom line: Think, and recollect, before panicking.

Technorati Tags: yield curve, quantitative easing, inflation expectations, recession, debt, and deficits.

Posted by Menzie Chinn"

We would only consider buying Treasuries if 10-year yields come to around 4 percent,

TO BE NOTED: From Bloomberg:

"Treasuries Decrease as Gains in Stocks, Oil Damp Haven Appeal

By Dakin Campbell and Gavin Finch

June 1 (Bloomberg) -- Treasuries fell for the first time in three days as stocks and commodities gained on signs that the recession is abating, damping demand for the safety of government debt and stoking concern inflation could increase.

Ten- and 30-year securities hit their lows of the day after reports showed U.S. manufacturing shrank in May at the slowest pace in eight months and spending on construction unexpectedly rose in April. The difference between two- and 10-year yields widened to 2.67 percentage points, approaching the record 2.76 percentage points set on May 27.

“The personal income number was much stronger than expected,” said Donald Ellenberger, who oversees about $6 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh. “The debate has turned to inflation.”

The yield on the benchmark 10-year note rose 16 basis points, or 0.16 percentage points, to 3.63 percent as of 10:53 a.m. in New York, according to BGCantor Market Data. The 3.125 percent security due in May 2019 dropped 1 10/32, or $13.13 per $1,000 face value, to 95 26/32. The yield on the 30-year bond climbed 14 basis points to 4.49 percent.

The Standard & Poor’s 500 Index gained 2.5 percent.

Ten-year yields have risen more than 160 basis points since falling to a record low of 2.03 percent last year.

Stocks Gain

Volatility in the Treasury market has picked up. Merrill Lynch & Co.’s MOVE index, which measure price swings in Treasuries based on prices of over-the-counter options maturing in two to 30 years, is up rose to 165.4 on May 29, up from this year’s low of 105.6 reached April 15.

U.S. debt handed investors a 4.3 percent loss this year, on course for the first annual drop since 1999, according to Merrill Lynch & Co.’s Treasury Master Index, as record government borrowing and signs the worst of the recession has passed dented demand. German bunds fell 1.3 percent and Japanese bonds dropped 1.2 percent.

Treasuries tumbled as stocks rallied after a Chinese report showed manufacturing expanded for a third month, adding to evidence the world’s third-largest economy is recovering from its deepest slump in almost a decade.

“Equities are higher and we are seeing our market come off as a result,” said Martin Mitchell, head of government-bond trading at the Baltimore unit of Stifel Nicolaus & Co.

The dollar dropped against all but two of the 16 most- traded currencies. Crude oil for July delivery rose as much as 3 percent to $68.29 a barrel on the New York Mercantile Exchange, the highest level since Nov. 10.

Consumer Spending

U.S. consumer spending fell 0.1 percent in April, smaller than forecast, Commerce Department figures showed in Washington. Incomes rose 0.5 percent, the biggest gain in almost a year, reflecting increases in unemployment insurance benefits and social security payments. The Federal Reserve’s preferred measure of inflation, which excludes food and fuel, increased 0.3 percent, after a 0.2 percent increase a month before, and was up 1.9 percent from a year earlier.

Spending on construction in the U.S. rose 0.8 percent in April, the biggest gain since August, Commerce Department figures showed in Washington.

Manufacturing in the U.S. shrank in May at the slowest pace in eight months. The Institute for Supply Management’s factory index rose to 42.8 from 40.1 in April, according to the Tempe, Arizona-based group. Readings below 50 signal contraction.

Inflation Expectations

Inflation expectations have picked up. The difference in yield between Treasury Inflation-Protected Securities, or TIPS, due in 10 years and nominal treasuries of the same maturity was at 1.84 percentage points, up from this year’s low of 0.05 percentage points Jan. 2.

“The risks to higher yields are the recovery of the U.S. economy and the debt issue in the future,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., part of Japan’s biggest bank.

Investors remained bearish on the outlook for U.S. government securities through December, a Ried, Thunberg & Co. survey showed.

The company’s long-term sentiment index fell to 42 for the seven days ended May 29, from 43 the week before. A reading below 50 means investors expect bond prices to fall. The New Jersey-based economic analysis firm surveyed 25 investors with $1.2 trillion of assets.

Yield Risk

“We would only consider buying Treasuries if 10-year yields come to around 4 percent,” said Shuhei Mochizuki, assistant manager in the foreign-bond section in Tokyo at Sumitomo Life Insurance Co., which oversees about $30.7 billion in non-Japanese debt. “We prefer European bonds for now.”

Declines in Treasuries may be limited as the U.S. pauses in its debt sales this week. Goldman Sachs Group Inc., one of the 16 primary dealers required to bid at the Treasury’s debt auctions, estimates that the U.S. may borrow a record $3.25 trillion this fiscal year ending Sept. 30, almost four times the $892 billion in 2008.

The U.S. budget deficit is projected to reach a record $1.75 trillion for the fiscal year ending Sept. 30, according to the Congressional Budget Office. It will surge to 12.2 percent this year, from 5.9 percent in 2008, according to the median forecast in another Bloomberg survey.

Treasury Secretary Timothy Geithner said today in China, the biggest holder of U.S. debt, that President Barack Obama plans to cut the budget deficit to “roughly 3 percent.”

‘Different Visit’

“No one is going to be more concerned about future deficits than we are,” Geithner told reporters on the way to two days of meetings that start today in China’s capital. Geithner is meeting Premier Wen Jiabao and other officials to assure the biggest holder of U.S. government debt that its assets are safe.

The U.S. will sell three-, 10- and 30-year securities next week after raising $101 billion from debt sales last week. The offerings may total $65 billion, according to an estimate by Wrightson ICAP LLC. The government has raised $720 billion in new cash this year.

The Federal Reserve, which has purchased $130.5 billion of Treasury debt this year in an attempt to lower consumer borrowing costs, is scheduled to buy securities due in 2016 to 2019 on June 3 and 2011-2012 notes the next day.

Some Fed officials judged the central bank may need to step up its asset purchases to secure a stronger economic recovery, according to minutes of the April 28-29 Federal Open Market Committee meeting released on May 20.

To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net"

asset purchase programs (MBS and Treasuries) more like insurance against rising real rates than true stimulus in the housing market

TO BE NOTED: From News N Economics:

"Asset purchase programs Update

Thursday, April 23, 2009

The Fed has been busy these last few weeks, acquiring its promised agency MBS in large quantities and jumpstarting its Treasury purchase program. By my calculations, total government asset accumulation totals $572 billion to date.

• The Fed purchased $381 billion in agency MBS at roughly $30 billion a week (since the announcement to purchase an extra $750 billion in agency-backed MBS on March 18). At this rate, the Fed will buy the announced $1.25 trillion by December 2009.
• The Fed acquired $65.2 billion in Treasuries bonds and notes, and $1.5 billion in TIPS since March. The Fed is buying the full length of the yield curve, maturity dates from 2009-2039. Interestingly, the Fed purchased TIPS last week. To me, further acquisition of TIPS would signal the Fed’s upward inflation bias – pulling out later than earlier.
• The Treasury continues its smaller but still active MBS purchase program, holding $124.3 billion as of March 2009. The Treasury’s flow of MBS is reported only monthly and at a lag, so it may be holding more.

The Fed and Treasury efforts are translating into lower mortgage rates; the 30-yr conventional mortgage rate fell 0.43% to 4.82% since February. However, the downward momentum was discrete, occurring fully in the wake of the Fed’s announcement to buy Treasuries. Furthermore, prices fell 0.1% in March, offsetting some of the downward momentum on real mortgage rates. Price declines are likely to catch up and even surpass nominal mortgage declines, leaving real mortgage rates unchanged, perhaps even up.

In reality, the deflationary (disinflationary) scenario that is typical of a recession of this magnitude makes the > $1.55 trillion Fed and Treasury asset purchase programs (MBS and Treasuries) more like insurance against rising real rates than true stimulus in the housing market, and fiscal measures are key. It seems that the fiscal stimulus will provide a floor under the economy, so that with stable real mortgage rates and record price declines, home sales have a real chance of bottoming in a few months, if they have not already.

Rebecca Wilder"

"For those who fear nationalization of our financial system, the destination seemed just over the horizon. "

William Gross on Pimco:

"2008 was the year when the United States led the charge of bailout nations, lending and literally guaranteeing trillions of dollars of private liabilities in an effort to avoid the advent of another Great Depression. Nothing, with the possible exception of George Bush’s IQ was the subject of greater debate. To begin with, the rescue plan itself was controversial even amongst its implementers: Congress voted against it, then a week later voted for it; Treasury Secretary Paulson designated it “TARP” (short for “Troubled Asset Relief Program”), then a month later did a 180°, refusing to buy subprime mortgages and asserting his right to change his mind because the facts themselves had changed. But the broader question reached beyond politics and into the realm of the dismal science itself. Was it necessary and productive to mutate 21^st

century American-style capitalism into a thinly disguised knock-off of the New Deal?( WE HAVE A WELFARE STATE BILL. )

Better, some thought, to have followed the advice of early 1930s Treasury Secretary Andrew Mellon: “Liquidate labor, liquidate stocks, liquidate the farmers ( LIQUIDATE CAPITALISM. DOES ANYONE BELIEVE THAT AVERAGE CITIZENS WILL STAND STILL FOR THIS PURGATIVE? )– purge the rottenness from the system.” The Mellons of the world argued that bailouts were akin to pouring gasoline on a fire, adding trillions of dollars of new debt to a domestic and global economy that had broken down because of, because of, well, because of – too much debt. ( HOW ABOUT TOO MUCH SOCIAL UNREST? )

Wall Street( THE INVESTOR CLASS ), the Fed, and Newport Beach took the other side. Those steeped in economic history felt that the Great Depression and more recently the “lost decade” in Japan had both experienced a “liquidity trap,” a monetary black hole where lenders, savers, and ultimately consumers were frightened into stuffing their money into a mattress rather than circulating it in classic capitalistic fashion. Sensing a freezing of credit markets ( A CALLING RUN ) following the default of Lehman Brothers, policymakers decided it was better to become a bailout nation than a sunken ship.

The debate, of course, can never be resolved. You can’t prove a negative nor recreate history to show what might have been. What we do know, however, is that even with U.S. and indeed global bailouts, almost every major economy entered recessionary territory in 2008 and that the “D” word, while unmentionable in official policy circles, was nevertheless on the tip of their tongues and at the forefront of their contingency plans. As we closed the year, “quantitative easing” was the publically acknowledged future policy of the Federal Reserve, which in short meant “buy assets, support Wall Street, and in the process, hope that some of it might trickle down to labor and the farmers.” Ben Bernanke is no Andrew Mellon. There may be rottenness in the system, but our Chairman surely doesn’t believe in starving a cold, or pneumonia for that matter. The Fed’s willing accomplice was the United States Treasury and the FDIC, extending not only $350 billion of TARP money but literally guaranteeing three quarters of the liabilities of U.S. banks. For those who fear nationalization of our financial system, the destination seemed just over the horizon.( SILLY )

Still, while such a transformation is, to put it mildly, undesirable, the policies are necessary.( I AGREE ) As outlined in these pages, the U.S. and many of its G-7 counterparts over the past 25 years have become more and more dependent on asset appreciation. Under the policy-endorsed cover of technology and somewhat faux increases in financial productivity, we became a nation that specialized in the making of paper( INSN'T PAPER A THING? ) instead of things, and it fell to Wall Street to invent ever more clever ways to securitize assets, and the job of Main Street to “equitize” or, in reality, to borrow more and more money off of them. What was not well recognized was that these policies were hollowing, self-destructive, and ultimately destined to be exposed for what they always were: Ponzi schemes, whose ultimate payoffs were dependent on the inclusion of more and more players and the production of more and more paper. Bernie Madoff? As with every financial and economic crisis, he will probably go down as this generation’s fall guy – the Samuel Insull, the Jeffrey Skilling, of 2008.

But Madoff’s scheme has a host of culpable look-alikes and one has only to begin with the mortgage market to understand the similarities. Option ARMs or Pick-A-Pay home loans allowed homeowners to make monthly payments that were so small they did not even cover their interest charges. Two million mortgagees either chose or were sold this Ponzi/Madoff form of skullduggery( I AGREE ), believing that home prices never go down and that shoppers never drop. One can add to this the trillions in home equity/second mortgage loans that extracted “savings” in order to promote current instead of future consumption, and one begins to realize that Bernie Madoff and our cartoon’s Wimpy had company all these years.

What about the shabby performance of the rating agencies? Were they not equally at fault for perpetrating a giant charade that was bound to end in tears? Of course( I AGREE ): Aaa subprimes structured like a house of straw; Aaa monoline insurers built like a house of sticks; Aaa credits like AIG, FNMA, and FHLMC where only a huff and a puff could expose them for what they were – levered structures dependent upon asset price appreciation for their survival. Ponzi finance.

I will go on. Municipalities with begging bowls now extended for over a trillion of Federal taxpayer dollars, based their budgets and their own handouts on the perpetual rise in home prices, the inevitable upward slope of sales taxes, and the never-ending increase in employment and personal income taxes. To add injury to insult, they conveniently “balanced” their books with a host of accounting tricks that Bernie Madoff could never have come up with in his wildest imagination. Now, with cash flow insufficient to meet current outflows, they are proving my point that we have met Mr. Ponzi and he is us – all of us: auto companies that siphoned sales dollars to make labor peace instead of research and design expenditures; hedge funds that preposterously billed investors for 2% and 20% of nothing; a President and politicians who thought they could fight a phony war for free and distract the nation’s attention from $40 trillion of future social security and health care liabilities. Ponzi, Ponzi, Ponzi.( ENOUGH WITH PONZI )

Still, future policymakers must confront the reality that is, not the one that should have been. And investors must do likewise, casting aside personal philosophies for a clear-headed view of the future horizon. PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks, and senior bank debt; Aaa asset-backed securities such as credit card, student loan, and auto receivables. These have been well-advertised PIMCO strategies over the past 6 months but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well – unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot.

Here’s another thought. While TIPS or inflation-protected securities cannot logically be a recipient of Uncle Sam’s checkbook over the next 12 months, they can benefit if and when the government’s efforts to reflate begin to take hold. 2½% real yields cannot possibly be maintained unless deflation as opposed to inflation becomes the odds-on favorite. What bond investors know as “breakeven inflation rates” are currently signaling a future where the U.S. CPI averages -1% for the next 10 years. Possible, but not likely. As an additional strategy, global bond investors should recognize the value in high-quality investment-grade corporate bonds in many markets. Yields of 6%+ for intermediate maturities are still common and readily available.

There is legitimate concern as to the ultimate destination and outcome of our “bailout nation.” Realistically, quantitative easing, a two-trillion-dollar expansion of the Fed’s balance sheet, and the near certainty of future budget deficits approaching 6-7% of GDP should alert bond investors to once again become vigilant as was the case in the 1980s and 90s. Vigilantes we should be, but that is a battle to be fought in the Treasury market where low yields offer little reward and increasing risk. For now, our Ponzi-style economy and its policy remedies encourage bond investors to mimic Uncle Sam and its global compatriots. Buy what they buy, but get there first. Andrew Mellon would surely have disapproved. Liquidation was his game. Wimpy? Well, he’s gonna have to start paying for those burgers on Monday, even in a bailout nation.

William H. Gross
Managing Director"

Is it possible for the Investor Class to realize that an economy is made up of people? I'm not sure. Forget Mellon, and read Edmund Burke.

"I explained that the deflation hype was rather exaggerated"

Emre Deliveli also sees Inflation ahead:

"At my inaugural column last week, I explained that the deflation hype was rather exaggerated, as the two commonly-quoted signs of deflation, U.S. October inflation and yields on American inflation-protected securities, were not accurate indicators at all. However, other market prices such as weakening oil and dividend yields on stocks surpassing yields on 10-year Treasuries have been pointing to deflation as well.

It seems that the market is definitely pricing for Deflationary Inferno even if deflation itself is not very likely. However, the alternative, Inflationary Purgatorio, is still far off the the markets’ radar. While many have learned to trust markets painfully, my overconfidence stems from the ongoing and prospective firefighting. After all, as a reader rightly noted, “numbers are important, but it is government policy that will shape the future”. And both fiscal and monetary policy are pointing towards eventual inflation.

The direction of monetary and fiscal policy

Even though he has been quick to announce his Economics team, you should not expect anything on the fiscal front until Obama settles in. This means that we are not likely to see the effects of fiscal policy on the economy until the second half of 2009 at the earliest. But once the stimulus comes, it is likely to be on the larger side because as this year’s Nobel Prize winner Paul Krugman notes, unlike monetary policy, fiscal policy is inherently asymmetric: It is easier to fix too much of it with contractionary monetary policy than too little of it with another stimulus package. Therefore, when it comes, the fiscal boost is likely to have an inflationary bias.

While fiscal policy is still far away, the Fed has had its hands full for some time now. While traditional monetary easing has not been effective, it has been complemented with more unorthodox tools such as intervening directly in credit markets. As the so-called quantitative easing is now semi-official, we can expect more of such creative policy from the Fed, whose balance sheet is starting to look increasingly like a hedge fund’s. In a similar vein, last week’s announcement that it would purchase USD 100bn in debt obligations from GSEs –government sponsored enterprises- is a first step in the monetization of public debt. With the low money multipliers, Fed’s actions are having a very limited impact on money supply for now. But the mere fact that the Fed is willing to shift to the extreme of policy means that it is not worried about inflation at this point."

This is what I believe is happening as well. Purgatorio is the Mezzanine Tranche of the Afterlife.

"Market implications, risks, and short-run outlook

Crises are always marked by the breakdown of time-tested relationships, but two interesting anomalies have emerged lately: Stocks have rallied while yields on the long end of the curve have fallen and the well-known positive correlation between dollar and long-dated Treasuries has broken. The scenarios I have explained above might shed some light on what is going on.

The recent flattening of the yield curve hints that quantitative easing is well-understood by markets, but its implications are not: All that liquidity and fiscal stimulus could find its way to inflation, which would in turn raise interest rates. With a huge US and global bond supply, we could even end up with a considerable bond market crash and another recession before the recovery from the current one is completed. While this dreaded W-shaped outlook is unlikely to pose a threat before the second half of 2009, it is in line with the anomalies above and paints a rather confusing outlook for the dollar (to be continued)."

I have already posted that we might have a bond market crash, and you know my theory of why these rates are so low. I believe it has to do with an overreaction based on the fear and aversion to risk, and an accompanying flight to safety.

“Ultimately this ends with inflation being significantly higher than the market is anticipating right now. "

Here's a Bloomberg post that addresses a few of my concerns:

"By Thomas R. Keene and Cordell Eddings

Dec. 3 (Bloomberg) -- U.S. actions meant to thaw credit markets will lead to inflation, making Treasury Inflation Protected Securities attractive, said Ira Jersey, an interest- rate strategist at Credit Suisse Group AG.

“The Federal Reserve is increasing its balance sheet and now printing money, and that’s all quantitative easing is, printing money,” Jersey said in an interview with Bloomberg Radio in New York. “Ultimately this ends with inflation being significantly higher than the market is anticipating right now. Things like TIPS in 10 or 20 years are a better value.”

This is what I believe should happen, and will happen.

The Fed will:

1) Print Money

2) Inflation Will Result

"Jersey also said there is value in the corporate market, where BBB-rated industrial debt is priced at default rates higher than those seen during the Depression.

“The question is do you think things are going to be worse than the Great Depression?” said Jersey. “We don’t think so.”

I've also already argued this same point.

"I have another idea that I think is more powerful: Issue 40-, 50-, 75-, and 100-year bonds. Issue TIPS versions as well. Hey, issue a perpetual "

Thank Heaven for David Merkel on The Aleph Blog:

"My Idea

Lest I merely seem to be a critic, I have another idea that I think is more powerful: Issue 40-, 50-, 75-, and 100-year bonds. Issue TIPS versions as well. Hey, issue a perpetual — Consols! As I have said earlier:

		David Merkel
		Now Let’s Have a Treasury Century Bond!
		8/3/2005 9:30 AM EDT

George, I’m really glad to see that the Treasury has finally gotten a lick of sense, and is re-issuing the 30-year, which they should be able to at yields lower then the current long bond maturing in 2031 (probably 10 basis points lower).

Timing is anyone’s guess, but I would suspect two auctions — in November 2005 and February 2006 — in order to give the new benchmark bond sufficient liquidity. Given the absence of long issuance, demand for this bond will be very strong in the hedging community.

Now, the Treasury won’t do this, but my guess is that there is even more demand for a 50-year, or even a century bond (100 years). It would help pension funds and structured settlement writers match their liabilities. Those bonds could sell at yields less than the 10-year. Won’t happen, but I can dream.

Final note, this removes one of my reasons for lower long rates, but I am still biased toward lower long rates. The other reasons still hold.

none mentioned, though I own Treasury Securities of various sorts, both directly and indirectly (don’t we all?)

There is a decent amount of demand for safe long-dated debt from pension plans, life insurance companies, and other long-term fixed income investors. These bonds would likely have lower yields than the 30-year bond, because of buyers that like long fixed income because of its reliability in a crisis. (And, for bond geeks — high positive convexity.)

Personally, I think the market would happily digest a lot of really long debt from a seemingly strong entity like the US Government. What, are we going to let the Europeans have a monopoly on long sovereign debt here? ;) US Treasury, be innovative — show the world how confident we are in the future of the US by issuing debt as long as we think this republic will last. Surely that is longer than 30 years."

He's prescient. Period.

One thing about that Aleph. It's not originally Hebrew. It's a stylized version of the Aramaic Aleph. The Original Hebrew Alphabet is now only used by Samaritans.