Morning Must-Read: Cardiff Garcia: [US Treasury Yields and Shrinkage, Sovereign Bond Availability Edition

Cardiff Garcia: US Treasury Yields and Shrinkage, Sovereign Bond Availability Edition: “Sometimes the simplest explanation…

…is the only one needed, and in economics it doesn’t get much simpler than supply and demand. Competing reasons have been offered for the sustained, vigorous decline in 10-year and long-dated US Treasury yields…. Stories about the factors that influence the demand for safe debt…. The supply of safe sovereign debt is a more straightforward story….

Thanks to the anticipated debt purchases by the ECB and the continuing purchases by the Bank of Japan, net issuance of sovereign debt from advanced economies that’s available to the private sector will turn sharply negative this year and next…. Net issuance of US Treasuries will grow… but not by enough to offset the collective decline of European and Japanese sovereign debt. And the US is still the prettiest pig in the global barnyard…. Will the weakness in long yields and how it affects inflation expectations alter the expected trajectory of US monetary policy? Possibly not. Members of the Fed are increasingly comfortable scoffing at market-based measures of inflation expectations…