while we slept; GFSIs 4th largest SPIKE; curve A-version; a couple (more) monthly charts (10yy close to a peak?)
Good morning.
Fed taper / tightening as war rages (despite or because empty suits met and meet again) with renewed hope for reasoning with a madman.
Nothing happens without consequences and I’ve gotta be honest with you. I’m not certain HOW the internet of things (like this, fintwit) works BUT this was posted on twitter yesterday …
@isabelnet_sa says that bofa says … (and branded by both, too?) the global financial stress indicators are flashing signals and yet … we are debating the yield curve in and of itself with an almost reckless abandon.
So much is being made of the signal (or noise) from yield curves as global Wall Street elites and ivory tower economists get together with those who ‘cover’ it all and put various SPIN on messages from yield curves.
It is as IF these curves are things in and of themselves and NOT representations of various expressions of how folks are putting their money where their mouths are.
Betting on outcomes which possesses a degree of career risk many of those in the MSM have never experienced. There are a few out there who have crossed lines (from policy makers to commentators—and their input much more important than others).
Seems to me that a simple factoid often gets lost in the curve debate and perhaps it isn’t as complicated (or as easy) as finding a visual (and narrative) which one can get behind and then fully commit capital (yours and that of those who’ve trusted theirs with you as a fiduciary).
John Authers’ latest is an example …
HOPE for a different outcome SPRINGS ETERNAL. And hope and good outcomes, helps sell newspapers … and likely why it made its way TO inclusion in the WaPO (with a somewhat watered down version).
John’s post offers something for most everyone and visuals of 2s10s
5s30s
as well as 3mo10yr (aka the financial curve) which is steepening and dramatically so
Win’s visual,
John’s story conclusion,
There are very many reasons for concern about the direction of the U.S. and world economies at present. The startling compression of the yield curve is a symptom of those problems. And the yield curve should never be ignored. But its behavior at present is more an indicator that the distortions caused by the interventions of the last decade or so can no longer be sustained, rather than a foolproof indicator that we are about to fall into a recession.
In other words, it’s different this time? And to be sure, a Fed that is taper/tightening into a ground WAR in the European arena is … well … unprecedented.
Consumer rapidly burning through their stimmy and high / rising gas (and other important staple) PRICES which are rising far ahead of the elusive wage gains (which are touted as historic by the political class because, you know, we’re stoopid and buy that garbage?
I’ll quit while I’m behind. Global Wall St will NEVER give up and here’s a link
ZH: Here Is What Wall Street Thinks Will Happen To Bond Yields Next
Harkster.com — for some KNOWLEDGE WITHOUT THE NOISE. Month, quarter and Japanese fiscal years end approaches. Seasonals change as do moods. Always.
Here is a snapshot of UST rates, prices and moves as of 735a
And HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are lower and the curve flatter out to 10's (10s20s30s +1.9bp so a notable cheapening at the 20y point again) with stocks on a front foot. Do have a look at today's last attachment to get a sense of how dip-buyers in Treasuries/swaps have headed for the hills of late... DXY is lower (-0.4%) while front WTI futures have rebounded modestly (+0.8%). Asian stocks were higher (save for modest drops in Chinese indexes), EU and UK share markets are all in the green (SX5E +2.5% and SX7E +3.3%) while ES futures are showing +0.4% here at 6:52am. Our overnight US rates flows saw a quieter Asian session today with real$ selling in 30's and fast$ selling in 10's the dominant flow. Overnight Treasury volume was ~150% of average overall with some relative standout average volume seen in 3's (263%).… Our last attachment comes from our London-based colleague, and RPM author, David Bieber. David mentioned this morning that he was not seeing strong evidence of dip-buying flows lately- very much unlike Treasury sell-offs of the past. So I asked David to find the best chart to illustrate this idea and this is what he graced us with this morning. It's a look at aggregate demand in cash and swaps across our franchise where net buying is above the line and net selling below the line- all flow DV01 adjusted. The black dotted line is UST 10y yields. So what is clearly different this time is that asset managers have been selling into weakness when in the recent past they have been a/the dominant dip buyer. Banks are buying the dip but LDI and AM names have been conspicuously absent. Interesting...
… and for some MORE of the news you can use » IGMs Press Picks for today (29 March) to help weed thru the noise (some of which can be found over here at Finviz).
Here are a couple / few from the CHARTS and technical analysis department
1stBOS 10yy MONTHLY
10yr US Bond Yields reversed sharply off their highs on Monday and are increasingly close to a peak in our view.
(still prepared to turn ‘tactically bearish’ at resistance - 2.285% looking for 2.645% and on the odd chance a trade TO 2.105% well, below there would ALSO require a turn ‘tactically neutral’ … )
Saxo’s week ahead offers longer-term look at 2yy
US Treasuries’ move has been considerable last week and today. The US yield curve has accelerated its flattening with the 5s30s spread inverting this morning for the first time since 2006. The whole yield curve is shifting higher. However, short-term yields are rising faster than long-term yields. Significant has been the 2-year US Treasury yields move, which broke above their falling decennial trendline. If they continue to soar, they will not find resistance until 2.85%, which coincidentally matches the Fed fund rate forecasted by the dot plot in 2023 and 2024.
DB on, “An end to the trend? Today’s chart is one I’ve seen many times over the last several years, showing the downward trend channel in 10yr US Treasury yields since the mid-1980s…”
Clearly such a channel can’t go on forever unless you’re of the opinion that we will consistently see negative nominal US yields in the latter part of this decade. So the near 40-year trendline will almost certainly have to end in the next few years regardless, but the recent spike in yields raises the prospect of it doing so imminently…
… Overall there has been a constant nderstanding of this cycle which is totally different to the last. Clearly this view is changing but the c.240bps of total hikes now priced in for 2022 still isn’t a huge year of tightening historically.
And speaking of DB, the banks earliest of early morning reads on bonds and curve flattening
Tying it all together, a couple quick and final thoughts / visuals from BBGs Five Things. First, this from last nights Asia edition (stocks go down when yields go up and approach peaks … who knew!),
Equities are, it seems, the new haven as Treasuries crash ever lower and investors shrug off soaring inflation worries. Some had fretted last year that an end to central bank bond buying would bring equities down as higher yields spurred a re-rating of already overvalued stocks. Instead it seems the great rotation for 2022 is out of fixed income and into shares.
This could all end rather roughly though, given that the sort of surge in benchmark yields we are now witnessing has often been followed by sustained equities losses. Looking back over the last 40 years there were four notable occasions — in 1980, 1987, 2000 and 2018 — when 10-year yields jumped toward fresh highs amid a tightening cycle, and were then followed by drawdowns of 19% or more for the S&P 500. In the mid 1990s, equities tracked sideways amid higher yields, while the economy remained famously robust and the Fed carved a muddled path of hike, cut, hike, cut, hike. And the 2008 stock meltdown was more about the property bubble bursting than a fairly modest climb in yields.
And this one (we’re all watching the wrong curves) early this morning
A key portion of the U.S. yield curve finally inverted on fear that aggressive Federal Reserve policy tightening will push the economy into a recession. The spread between 5- and 30-year yields turned negative for the first time since 2006 on Monday. Remember, a yield curve inversion is an event with a reliable track record of presaging a recession within roughly the following 18 months. Fed Chair Jerome Powell has downplayed the message, telling traders they are looking at the wrong curve. He cited the steeping gap between future expectations for the rate on three-month Treasury bills versus the current three-month yield as a sign there is low recession risk. That clearly goes in the opposite direction. But it is also problematic by design, not least because three-month yields are capped by what can realistically happen rates over that time frame. And while there's an implication that the Fed's preferred curve would only invert when large numbers of investors expect rate cuts, there are clearly cuts priced in to other futures markets as early as next year. In any case the recession warning bell has firmly been rung.
… THAT is all for now. Off to the day job…