Tweets Cause Treasury Yields to Drop?
Never before has so little been, so often, to so many.
I'm not sure if that's how the saying goes, but that's definitely my two cents on social media in general. While many of us will vent and express gratitude on social media to a very small audience, our esteemed president has a far greater following, and what he tweets (no matter the meaning) has a major impact on domestic and world markets.
A good instance of this was recently highlighted by Business Insider, noting that following the Labor Day Weekend, traders returned to see that North Korea had held is 6th (and largest) nuclear test. Naturally, when worry happens and stock markets decline, many traders shift their money into stable securities...in particular, Treasury bills. As such, the yield on US Treasuries following this news began to rise for much of the morning of September 5.
That was, until President Trump stated on Twitter:"I am allowing Japan & South Korea to buy a substantially increased amount of highly sophisticated military equipment from the United States."
Post-tweet, Treasury yields dropped almost 6 points. As the sock market opened, here is how each yield duration fared:
2-year -3.2 bps at 1.310%
3-year -4.1 bps at 1.418%
5-year -5.3 bps at 1.685%
7-year -5.8 bps at 1.934%
10-year -5.8 bps at 2.108%
30-year -4.9 bps at 2.728%
As a result, yields dropped to their lowest level since the week after the US election. The benchmark 10-year yield was hovering around 1.80% ahead of the election, and rallied sharply following Trump's win on speculation his policies would bring back growth and inflation to the American economy.
However, the spread between these Treasuries has reached troubling levels (-10-year spread, which is tighter by 2.5 bps at 79.4 bps), these have been at their flattest level since the fourth quarter of 2007 (right before the recession).
Traders continue to watch this activity as it is a predictor of a coming recession. However, continuous interference by the President based on speculation can only make these otherwise predictable signs very difficult to track.