Tag: 10-year bond yield

Good News Is… Good News

Posted on by George Yacik

If you're a bond investor, maybe you should be praying for impeachment after last Friday's November jobs report.

Granted, based on other indicators, including GDP, leading indicators, and others, the economy is not as strong as it was at the beginning of this year. But it’s still in pretty good shape, as witnessed by the 266,000 jobs that were added to the economy last month.

The immediate reaction in the bond market was a sharp drop in prices and a concomitant rise in bond yields. In other words, good economic news is bad for bonds. By the same token, a strong economy pretty much squashes the idea of the Federal Reserve lowering interest rates anytime soon, which is also negative for bond prices. If anything, if this keeps up, the Fed’s next move may be to raise interest rates again, not lower them, which is the prevailing view in the financial markets at the moment.

So that would indicate that the bond investors’ best hope is for the Democrats to be successful in impeaching Trump and as quickly as possible and push the economy in the other direction.

Of course, as some of us might remember from our junior high civics or American government class (do they still teach that in schools?), impeachment is not the same thing as removal from office. President Clinton and President Andrew Johnson were both impeached, but neither was removed from office, having prevailed in the subsequent trial in the Senate. (That’s the part most giddy news stories about the current impeachment drama leave out). But then again, the entire Democrat strategy is really about generating as many headlines as possible with the words “Trump” and “impeachment” close together, as if that’s good enough.

So impeachment isn’t such a great political or electoral strategy. Neither is it a good bond investment strategy.

Let's get back to the jobs reports, which was described variously as a “blowout” or “blockbuster” or words close to that. Continue reading "Good News Is… Good News" →

You Have To Invite The Vampire Into Your House

Posted on by Gary Tanashian

A vampire needs to be invited in order to enter your house. So the story goes. But in this case, we are talking about the Macro house, with its nexus in the USA and its Central Bank.

You see, the Federal Reserve inflates money supplies as a matter of doing business, which is why I noted so strenuously in Q4 2018 that Jerome Powell’s then-hawkish stance in the face of a declining stock market made perfect sense… because the 30 year Treasury bond was not bullish; it was bearish and getting more so under the pressure of rising inflation expectations.

But now as we noted the other day the inflated Sub is losing pressure. As we noted before that Goldilocks is being threatened. Here are the updated ‘inflation gauges’ from that post, continuing to lose pressure.

Q4 2018

But in Q4 the Fed had a threat if its own to deal with as the repercussions of its previous inflationary operations could be exposed to the light of day by the breakout through the Continuum’s limiter if it were not arrested promptly. The orange arrow on the chart below shows the point of concern for the Fed. Continue reading "You Have To Invite The Vampire Into Your House" →

The Inflated Sub Is Losing Pressure

Posted on by Gary Tanashian

The charts are super interesting to look at. How quickly things turn, as if on a dime.

tnx

2018 featured a break above the Continuum’s limiter and folks, you and I were not the only ones who saw that and uttered “ruh roh!”; the Fed was well aware of the inflationary implication. Continue reading "The Inflated Sub Is Losing Pressure" →

Dimon Says: Get ready for 5% 10-year yield

Posted on by George Yacik

If you don’t believe me, believe Jamie Dimon.

“I think rates should be 4% today,” the JPMorgan Chase CEO said this week, referring to the yield on the benchmark 10-year Treasury note. And if that wasn’t strong enough, he added, “you better be prepared to deal with rates 5% or higher — it's a higher probability than most people think.”

The question shouldn’t be, “Is he right?” Instead, it should be: “Why aren’t rates that high already?”

The 10-year yield ended last week at 2.95%, about unchanged from the previous week, although it did cross over into 3.0% territory for about a day before falling back. It started this week at 2.93% -- after Dimon made his comments.

Just about every Federal Reserve comment and economic and supply-and-demand figure screams that the yield on the 10-year should be at least 100 basis points higher than it is today. Yet the yield remains stubbornly at or below 3%. Continue reading "Dimon Says: Get ready for 5% 10-year yield" →

Don't Bet On Crises To Keep Bond Rates Lower

Posted on by George Yacik

Despite the recent dip in the 10-year Treasury note yield back below 3%, don’t count on it staying there. Lately, it seems, the only thing keeping the rate below that level is some sort of international crisis – Italy, North Korea, trade wars, etc. But the basic fundamentals determining that rate – economic growth and supply and demand, in other words – are calling for even higher rates, well above 3%.

On the supply side, more Treasury debt is coming to market all the time, like an incoming tide in the Pacific Ocean. On the demand side, there are fewer buyers – and I mean big buyers. More about that in a minute. At the same time, the economy is growing stronger, which by itself is going to put upward pressure on rates.

In other words, if you’re betting that the 10-year yield is going lower, or will stay around or below 3%, you’re really only holding it as a safe haven. Nothing wrong with that, lots of investors do that. But if you’re hoping to profit when something in the world goes wrong, you may be playing a losing game.

First the economy. Last week on CNBC’s Squawk Box, the gold dust twins, Warren Buffett and Jamie Dimon, tried to outdo themselves in how great the U.S. economy is performing. Continue reading "Don't Bet On Crises To Keep Bond Rates Lower" →