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?"
If you’re an investor in U.S. Treasury bonds, should you be worried that China may go nuclear? (No, not that kind of nuclear, the kind in the headline of a recent Reuters article about China’s supposed “nuclear option” to stop buying, if not outright sell, its huge holdings of American government bonds).
According to that report – speculation, really – China may consider retaliating against President Trump’s tough tariff talk by pulling its indirect support of the U.S. government, namely its holdings of about $1.2 trillion of Treasury securities. That makes it the largest foreign holder of that debt. Japan is a close second with $1.1 trillion, while Ireland (Ireland?) is a distant third with $328 billion. Altogether, $6.2 trillion of the U.S. government’s total debt of $20 trillion is held by foreign entities or about 31%. That would put China’s share at about 18% of the total foreign-held amount and less than 6% of the grand total.
In case you were wondering, the Federal Reserve holds about $4.5 trillion of the national debt or about four times what China owns. The Social Security Administration owns about $2.8 trillion.
So, is this something we really need to be worried about, even under the remote possibility that China would actually, in financial terms, cut off its nose to spite its face? Continue reading "Will China Nuke Its Own Treasury Portfolio?"
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?"
In February Jerome Powell takes over as chair of the Federal Reserve, succeeding Janet Yellen. His first order of business should be to get the Fed off its silly, outdated and nonsensical monetary policy target of 2% inflation. He and the other members of the Federal Open Market Committee should at the very least change the inflation target number, or, better yet, find a different measuring stick altogether.
One of the Fed’s mandates, we know, is to keep inflation “stable,” as noted on the Fed’s website, citing the Federal Reserve Act (the other two mandates are achieving maximum employment and moderate long-term interest rates). The current Fed has taken to defining price stability as 2% inflation. Given that the Fed already basically believes it has accomplished the other two objectives, and price inflation has been nothing but rock-solid stable for several years, it’s not clear why it’s still so determined to get inflation up to that 2% target rate, and letting that dictate its monetary policy. If prices are stable at about 1.5%, rather than 2%, doesn’t that meet the mandate, as long as prices are stable?
During the Great Depression of the 1930s the lack of inflation – more accurately, deflation – was a big problem, feeding the downward spiral in the economy for more than ten years. Since then, economists, both on the Fed and elsewhere, have been absolutely terrified of that happening again, even though we haven’t come close to it, not even during the depths of the recent Great Recession. Now that we have seemed to have finally pulled out of the last financial crisis, it’s time to put that deflation obsession to rest. Continue reading "The Fed's 2018 New Year's Resolution"