Falling bond yields don’t reflect US economy’s fundamentals

Larry Kudlow, President Donald Trump’s prime economic advisor, explained to CNBC on Friday that he thinks the recent drop in U.S. bond yields doesn’t mirror industry fundamentals but in its place a transient flight to safer assets in the wake of the coronavirus in Asia.

Asked by CNBC’s David Faber how he interprets a new, all-time small on the 30-year Treasury bond, Kudlow mentioned he has to believe it can be “a operate to protection.”

“I just feel, in standard, I would be extremely cautious to put far too a great deal emphasis on what bond costs are undertaking, what desire premiums are performing. Or even in the shorter, quick run, the stock industry,” he claimed. “I assume you have a whole lot of mood swings below and I do not assume it displays the fundamentals.”

Kudlow’s opinions arrived as the yield on the benchmark 30-calendar year Treasury bond fell to an all-time lower under 1.9% and the Dow Jones Industrial Common dropped 285 factors, marginally significantly less than 1%.

Even though traders extensively blamed the coronavirus for Friday’s danger-off pivot, some instructed the record minimal on the 30-12 months bond represents a for a longer time-phrase see that economic development could be slowing and that the Federal Reserve may not be geared up to solution a slowdown.

“The fixed revenue sector, ordinarily the world’s greatest pessimist, tends to appear way out in the long term when pricing the existing sector,” wrote Raymond James charges strategist Kevin Giddis. “It is looking much ahead to the detrimental consequences that the virus could have on the U.S. financial system, which could pressure the Fed in, kicking and screaming.”

But Kudlow countered that the inventory market’s robust gains about the last 12 months are a signal of “organization and buyer self esteem” and that corporate problems could stay balanced through 2020.

“In the 3 a long time less than policies of decrease tax charges, deregulation, unbiased electricity and greater trade discounts to open up up an export increase, we have managed a 2.5% expansion amount on ordinary,” he reported. “That is considerably improved than the prior administration. It is also noticeably much better than what the CBO has forecasted.”

“The usa is doing work and there is a blue-collar growth,” he mentioned. “This a basically pretty seem financial system.”

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