Hello traders everywhere. The 10-year U.S. Treasury yield has risen above 3% for the first time since January of 2014, signaling that higher interest rates are ahead for the U.S. bond market as the Federal Reserve is intent on boosting interest rates after keeping them at historically low levels for some time. The yield, the benchmark for everything from U.S. mortgages to dollar bonds in developing nations, climbed as high as 3.0014% in morning trading, before slipping back below 3% to 2.979% in the early afternoon.
As the 10-year yield broke three percent the stock market turned lower with the DOW losing over 1% on the day with the S&P 500 losing .80% and the NASDAQ falling 1.4% as tech is posting heavy losses.
Speaking of tech, the FAANG stocks are all lower on the day with Alphabet leading the way. Alphabet (Google) is posting a loss of over 4.5% on the day after reporting earnings where they made a lot of money, but investors are worried about rising expenses.
The other FAANG members are posting steep losses as well. Facebook declined 3.4%, Amazon 3.8%, Netflix declined 4.2% and Apple is losing just a tad over 1% on the day.
Key Levels To Watch This Week:
S&P 500 (CME:SP500): 2,553.80
Dow (INDEX:DJI): 23,344.52
NASDAQ (NASDAQ:COMP): 6,805.90
Gold (NYMEX:GC.M18.E): 1,337.60
Crude Oil (NYMEX:CL.M18.E): 67.14
U.S. Dollar (NYBOT:DX.M18.E): 88.94
Bitcoin (CME:BRTI): 6,616.14
INO.com and MarketClub.com
In case you hadn’t noticed, the yield on the benchmark 10-year U.S. Treasury note is this close to hitting the psychologically important 3% level. Is this the sign of still higher rates to come, or another buying opportunity, meaning rates are going to fall back again?
While most of the market seemed not to notice, seeing as it was fixated on corporate earnings and what’s going on in the tech sector, the yield on the T-note surged by 14 basis points last week to close Friday at 2.96%. That’s up nearly 25 bps since the beginning of this month and 55 bps year to date. It’s also the highest level since the beginning of 2014.
If you recall, we got close to hitting 3% two months ago, when the yield spiked to 2.95% on February 21, surging 25 bps in just two weeks before retreating quickly back to about 2.80% by the end of the month. The note then traded in a fairly narrow band between 2.80% and 2.90% over the next month before dropping sharply to 2.73% at the end of March and early April, after which it surged to Friday’s level.
Are we going to repeat the pattern of late February, meaning that this represents a buying opportuning in the Treasury market, or is this the signal that we are going to finally blow past 3% following February’s false start? Continue reading "Will The 10-year Treasury Crack 3% This Week?"
New Federal Reserve chair Jerome Powell had all kinds of excuses not to raise interest rates at last week’s FOMC meeting:
- The yield on the 10-year Treasury note was trading close to its highest point in more than four years and dangerously close to breaking the 3% barrier.
- Stocks have fallen well off their highs, and investors are nervous about the prospects of a potential trade war between the U.S. and its biggest trading partners, particularly China and Canada.
- The threat of that trade war has influenced some economic forecasters to lower their GDP growth forecasts for the first quarter to below 2%, which would be the lowest level since President Trump took office.
- The turmoil in the Trump Administration, with cabinet secretaries and other senior officials jumping ship or being pushed overboard, doesn’t help calm the waters.
Yet Powell and the seven other voting members of the Federal Open Market Committee saw fit to raise the federal funds rate by a quarter percentage point to a range between 1.5% and 1.75%. Not only that, but the FOMC stuck to its guns and indicated a steady diet of rate increases over the next three years, pushing rates closer and closer back to what used to be normal before the global financial crisis. After three rate increases this year, three more are likely next year followed by two more in 2020, which would boost the fed funds rates to a range of 3.25% and 3.5%.
And yet the world didn’t end. In fact, the yields on Treasury securities actually fell after the meeting ended on Wednesday afternoon. The 10-year note, the bond market’s long-term benchmark, trading just below 2.90% on Tuesday, fell five basis points after the meeting to 2.85%. The yield on the two-year note, which is more sensitive to interest rate changes, dropped seven bps after the meeting. Continue reading "The Powell Era Begins"
As a homeowner in a high-tax Blue state, I’m not sure I have a whole lot to be personally happy about in the Trump tax reform bill. My state’s government, which is already teetering financially, isn’t likely to reduce its own taxes to compensate for the cap on deducting state and local taxes. Nevertheless, I’m happy that the measure passed.
For one thing, it’s heartening to see the Republicans stand fast for a change and actually follow through on something their constituents have demanded and expected from them, rather than caving in the face of criticism from their liberal opponents in Congress and the press. I’m also getting a lot of enjoyment listening to the breathless hyperbole by Nancy “Armageddon” Pelosi, Chuck “Fake Tears” Schumer and the gang denouncing the bill, plus the stories by their allies in the press about the “victims” of tax reform, neglecting to mention the “victims” at AT&T, Wells Fargo and all who are being given immediate raises as a result of the measure.
Not a whole lot has been written or said about one of the more likely consequences of the package, and that’s that interest rates are going to move higher in 2018.
Already, in just a few days leading up to the passage of the bill, the yield on the 10-year Treasury note jumped 15 basis points to 2.50%, its highest level since last March and just 10 or so bps below its high for the year. It’s likely to rise further in 2018. Here’s why. Continue reading "Higher Bond Yields In 2018?"
Janet Yellen’s equivocal remarks at last week’s semi-annual Congressional testimony certainly might make you believe that a rate hike at the Federal Reserve’s July 25-26 meeting is hardly a sure thing. Indeed, the odds of that happening are a lot less than 50-50. A lot less.
In her testimony, Yellen remained confident in her previous declarations that inflation would gradually rise to the Fed’s 2% target. “It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years,” she said. But then she quickly hedged her bets. “We’re watching this very closely and stand ready to adjust our policy if it appears that the inflation undershoot will be persistent,” she said.
Based on the past several months’ worth of inflation statistics, one would have a tough time arguing that lower-than-expected inflation hasn’t become “persistent.” Last month’s consumer price index was unchanged from May and up only 1.6% versus a year earlier, the fourth straight decline by that measurement. That followed May’s personal-consumption expenditures index, the Fed’s preferred inflation measure, which fell 0.1%. The core index, which excludes food and energy, rose 0.1%, but just 1.4% on a year-to-year basis, well below the Fed’s target rate and lower than at the beginning of the year. Continue reading "Has Yellen Become A Dove Again?"