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Tag: 10-Year Treasury

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Market Outlook

Bond And Stock Markets Rally Strongly On Cooling Inflation

US 10-year treasury yields

Bonds Rally: The US 10-year treasury yield drops 14 basis points from 4.8% to 4.66%

The S&P 500 rallies 1.83% to 5,950, and the Nasdaq Composite zooms 2.45% to 19,511

CPI Data Signals Cooling Inflation in Good News for Fed

US Dec. consumer prices rise 0.4% M/M; Est. +0.4% The broader Consumer Price Index (CPI) matched expectations and rose 2.9% in December from a year earlier.

The benign numbers were in the Core CPI, led by shelter inflation, which was sorely needed.

Core prices rose 0.2% in December, less than the 0.4% estimated and 3.2% from a year earlier, down from 3.3% in November – an unexpected decline, which sparked the bond and stock rally.

Prices for shelter, airfares, used cars and trucks posted gains. Airfares were the outlier rising by 7% and gas prices also rose 4% MoM

Shelter inflation remained moderate, coming in at 0.3% on the month, a big sigh of relief for the Feds – shelter inflation is the stickiest and the hardest to reduce. The shelter index rose 4.6% YoY,  the smallest annual increase since January 2022.

US government bonds rallied strongly, reviving hopes of additional Federal Reserve interest-rate cuts, which were down to a total 29 basis points cut for the whole year. 

As the rally progressed Treasury yields across maturities fell by at least 10 basis points and closed with 10-year yields falling as much as 15 basis points to 4.65% for its biggest daily decline since August.

What a turbulent month so far – and all this before Trump is sworn in. The drop in yields reversed the sharp rise from a strong December employment data released Friday, which sparked a surge toward the highest levels in months to 4.81%, all but confirming that the Feds may not cut rates at all this year. At 4.81%, the 10-Year was a 100 basis points higher than when the Fed began easing in September.

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Market Outlook

Don’t Ignore The 10-Year Yield

It All Came Tumbling Down

The likelihood of only two Fed rate cuts in 2025 sent the markets tumbling yesterday, even as Chair Powell was still answering pointed questions about the resilience of the economy and where inflation was headed in 2025. The S&P 500 eventually closed 2.96% lower. shattering the post-election rally.

The markets had been ignoring the 10-year yield for far too long. The 10-year went from 3.6% in September when the Fed started cutting to 4.40% before the FOMC meeting, signaling that inflation wasn’t completely done and that stock valuations were getting frothy. It unraveled yesterday. Analysts are talking about the 10-year possibly reaching 5%, which will remain bad for stock multiples. The S&P 500 and the Nasdaq Comp are down 4.5% from their highs. Let’s see how the PCE report is on Friday.

The last time the S&P 500’s P/E ratio was 22, it was 2021, and the 10-year treasury yield was 1%! We are at 4.5% and climbing! The expectations of 4 cuts in 2025 had kept the markets hopeful that the 10-year would follow suit and head back below 4%. Clearly, that’s not happening. Either the index has to come down or the 10-year has to drop to justify these valuations….

Also don’t forget the Fed’s reluctance to cut big for forecast more cuts in 2025 was based on the Sep, Oct and Nov inflation readings, they’ve not even talked about the possible inflationary impact of tariffs and larger fiscal deficits – somebody has to fund the government when they’re not collecting enough taxes, and the weaknesses in the past two treasury auctions suggest that lenders are demanding better rates to lend to the government.

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Market Outlook

Jobs Report: June 2024

A good jobs report.

206,000 net new jobs V 190,000 expected.

4.1% unemployment rate, a bit higher than expected, the Feds expected this rate by Dec 2024.

Revisions are the bigger story with 57,000 and 54,000 lower revisions for April and May 2024. So, the 206,000 jobs for June may be revised as well following the trend.

Wage rate – Average hourly earnings climbed by 0.3% in June from the previous month, taking the annual increase to 3.9%.

Futures are flat, and the 10-year has dropped to 4.29%.

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Market Outlook

March Core PCE Price Index Matches Expectations, While Personal Income and Outlays Show Steady Growth

March Core PCE Price Index:

+0.3% M/M vs. +0.3% consensus and +0.3% prior.

+2.8% Y/Y vs. +2.7% consensus and +2.8% prior.

PCE Price Index: +0.3% M/M vs. +0.3% expected and +0.3% prior.

+2.7% Y/Y vs. +2.6% expected and +2.5% prior.

Personal income: +0.5% M/M vs. +0.5% expected and +0.3% prior.

Personal outlays: +0.8% M/M vs. +0.6% consensus and +0.8% prior.

The 10-year is down slightly to 4.67%

Categories
Market Outlook

The Anomaly of Interest Rate Movements: Are Markets Disregarding the Fed?

source

The anomaly of interest rate movements

  • Are markets not believing the Fed?
  • The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
  • Intuitively the yields should have gone up – is there something else at play.
  • I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.

Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.