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My Early July Surprise: More Outflows Of Foreign Money From U.S.

John M. Mason profile picture
John M. Mason


  • Over the past several weeks, the yield on US Treasury securities have turned around and risen, a rise that seems to be connected with risk averse monies leaving the US.
  • During the current economic recovery, risk averse funds flowed into the US and drove the yield on Treasury Inflation Protected securities down, some yields even dropping into negative territory.
  • This flow turned around in November 2016 with the election of President Trump and has now begun to increase due to apparent change in direction of the European Central Bank.

I have been on vacation the past couple of weeks and so in catching up, I looked for what I considered to be the biggest change in the financial or economic data during this time period.

The first thing that caught my eye was the jump in the yield on the 10-year US Treasury note. In the middle of June, the 10-year rate was about 2.13 percent. On June 26, the note closed just under 2.14 percent.

On Monday, July 10, the yield on the 10-year note closed to yield around 2.37 percent, showing a 23 basis point increase from the late June date.

The first thing I looked for as an explanation of the big turnaround in the Treasury rate was an increase in inflationary expectations. Historically, if the 10-year Treasury yield jumps this much, the explanation usually is connected with some new economic data that causes market participants to look for more inflation in the future.

However, that was apparently not the reason for the jump in late June and early July.

On June 26, the inflationary expectations built into the yield of the 10-year Treasury note were only about 1.700 percent. On July 10, the same measure of inflationary expectations was around 1.742 percent; not much of a change.

Thus, I could rule out a rebound in inflationary expectations as the reason that the yield on the 10-year Treasury rose by as much as it did.

The next thing to turn to was the yield on the 10-year Treasury Inflation Protected Securities (TIPS).

Here, we find the source of the rise in the nominal interest rate. The yield on the 10-year TIPS was around 0.400 percent on June 26, and the yield on these securities was around 0.63 percent on July 10.

What seems to be the

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

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