The chart above plots 10 years of the 10-year CMT (left scale) and the Y/Y percentage change in GPD (right scale). Notice the following general trends:
1.) The 10-year has moved lower since the recession. In the second quarter of 2009, the 10-year came close to 4%. It is currently in the 2.3-2.4 range.
2.) In absolute terms, the 10-year yield increased more than 100 basis points between the summer and fall of 2017, rising from 1.37% to 2.6%. Traders called this the "Trump trade." They believed that Trump would increase fiscal spending (largely on infrastructure) and lower taxes. The combination would increase growth and inflation, hence the sell-off in the long-end of the bond market. Since the election, yields have trended lower, incating the "Trump trade" is losing steam.
3.) The Y/Y percentage change in GDP has mostly printed between 2%-3% since 2010. Weaker GDP growth is a function of slowing population growth, lower productivity, and the "debt-deflation" growth dynamic that characterized this expansion.
4.) Yields are fluctuating between ~2% and ~2.6% -- hardly a level indicating booming growth. This means bond traders are thinking, "more of the same is coming."
