How in the heck can the 30 year Treasury bond yield be trading at just 1.97%, an all-time low, when just 10 months ago it was up at 3.46% and “breaking out” to the upside? We were supposed to have a bond-pocalypse, after all, with yields never again coming close to the levels that prevailed back in 2016. In reflecting on the answer, we are reminded of a quote from the cult classic film, The Big Lebowski:

Dude: With friends like these, huh, Gary?

Gary: That’s right, Dude.

Just replace the word, “friends” with “economic data” and the explanation for the rally in bonds makes sense. Contrary to what appears to consensus opinion, the economic data is in fact weak and set to get weaker. Take, for example, today’s releases of retail sales, industrial production and unemployment claims. All of them are lagging indicators and closely follow the ISM PMI data, which itself is coincident.

Based on the ISM, the “strong” retail sales number is actually behaving as expected and set to get weaker through year end. Furthermore, if we strip out “Prime Day”, the actual retail sales in July would have grown about half as much.