Jawad Mian Profile picture
22 Feb, 14 tweets, 3 min read
1) If you review all the big declines in bond yields since the beginning of the secular downturn in interest rates in 1981, you find something very interesting.

Thread 👇

2) From each historic low, the 10-year Treasury yield retraced 50 to 61.8 percent of the drop over a span ranging from 2 months to 14 months.

The fundamental reasoning almost did not matter, this curious pattern held every time.
3) 1981-84: The 10-year yield fell from a high of 15.8 percent in September 1981 to a low of 10.1 percent in May 1983.

Then rose to 13.9 percent over 12 months and retraced 61.8 percent of the decline.
4) 1987-88: The 10-year yield fell from a high of 10.2 percent in October 1987 to a low of to 8.1 percent in February 1988.

Then rose to 9.4 percent over 6 months and retraced 61.8 percent of the decline.
5) 1994-96: The 10-year yield fell from a high of 8.1 percent in November 1994 to a low of 5.3 percent in December 1995.

Then rose to 7.1 percent over 7 months and retraced 61.8 percent of the decline.
6) 1997-2000: The 10-year yield fell from a high of 6.9 percent in April 1997 to a low of 4.1 percent in October 1998.

Then rose to 6.8 percent over 15 months, retracing nearly the entire decline.
7) 2000-02: The 10-year yield fell from a high of 6.8 percent in January 2000 to a low of 4.1 percent in October 2001.

Then rose to 5.4 percent over 5 months and retraced 50 percent of the decline.
8) 2002-03: The 10-year yield fell from a high of 5.4 percent in March 2002 to a low of 3.1 percent in June 2003.

Then rose to 4.6 percent over 2 months and retraced 61.8 percent of the decline.
9) 2007-09: The 10-year yield fell from a high of 5.3 percent in June 2007 to a low of 2.1 percent in December 2008.

Then rose to 4.0 percent over 6 months and retraced 61.8 percent of the decline.
10) 2011-13: The 10-year yield fell from a high of 3.7 percent in February 2011 to a low of 1.4 percent July 2012.

Then rose to 3.0 percent over 14 months and retraced slightly more than 61.8 percent of the decline.
11) In our current cycle, the 10-year yield fell from a high of 3.2 percent to a low of 0.4 percent in March 2020.

The 50 percent retracement of the decline comes in at 1.8 percent. The 61.8 percent retracement target is 2.1 percent.
12) This seems inconceivable given the grim economic reality, but the historical pattern is clear.

We should reach either level in 2021.
13) We highlighted this observation to members in May last year, when the 10-year yield was at 0.6 percent.

"A sharp repricing in government bonds is coming."
14) When fundamentals don’t make much sense, charts are useful in order to extract the signal from the noise.

Finding patterns is the essence of investing. The future is not always a reflection of the present.

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19 Feb
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28 Jan
1) If you're not reflecting on risk management after this week's events then what are you even doing?

Here's a thread on some basic thoughts on how to better manage risk and mistakes going forward:
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Keep looking for disconfirming evidence.
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2 Jan
"What important truth do very few people agree with you on?"

My heretical answer to Peter Thiel's favorite interview question. 🔥
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