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
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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?"
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?"
Way back in high school, my freshman algebra teacher told us about Zeno’s Paradox, which the Greek philosopher (Zeno, not my teacher) explained through the story of Achilles and the Tortoise. According to the story, the two were engaged in a footrace, but no matter how much faster Achilles could run compared to the tortoise, he could never quite catch up to him. Why? Because while Achilles could consistently halve the distance between himself and the slower-footed reptile, the gap between the two could be reduced fractionally an indefinite number of times, so, therefore, he could never catch up – theoretically speaking, of course.
I was reminded of that story when I read the media headlines about the release last week of the minutes of the Federal Reserve’s September 20-21 meeting. Once again, the Fed said it was almost, but not quite, ready to tighten monetary policy. This time, the Fed used the words “relatively soon” to describe the timing of its next rate increase, which would be the first one since last December.
“Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded about as the committee expected,” the minutes said. Also, those members – still the majority – who still wanted to “await further evidence” before voting for a rate hike said it was a “close call” in their decision to wait.
In other words, like Achilles chasing the tortoise, the Fed just keeps getting closer and closer to raising rates but just never gets to that point. Continue reading "The Fed Tease Continues - But For How Much Longer?"