Source: Bloomberg

Too much attention is paid in the financial press to the effect of economic growth on Treasury yields. This is impossible to measure. Treasuries are there as a safe harbor in case the world goes pear-shaped.

The “real” yield component of Treasuries trades in lockstep with gold. Gold collapsed and Treasury yields jumped after the French elections, and there will be more of that to come.

First, the world simply is less risky with the United States, Europe and Asia all growing in sync. Second, the likelihood of major political or strategic crisis has diminished as the Trump Administration settles in, and Europeans decide that populism isn’t an experiment they would like to relive. There’s more pain ahead for government bonds as well as gold.

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