The 10 year treasury has moved higher today–up to 4.69% after the release of the Institute of Supply Management (ISM) report showing strong performance in the service sector. The pricing index showed a sharp increase which put the hammer on equities. The report is here. Normally these reports don’t represent importance–but as always, subject to change, so now they are important.
JOLTs (job openings and labor turnover) was also released and the numbers were much stronger than forecast with about 8.1 million job openings versus a forecast of 7.7 million and last months reading of 7.84 million.
Preferreds and baby bonds are off a bit–although thus far the damage is minimal.
While we are all bound by our commitment not to talk politics……
Any chance that long interest rates may be affected by the proposed legislation to raise the debt limit, keep the tax reductions, eliminate the SALT limit and who knows what other goodies?
Unbiased analysis of politics as it affects investments not stumping for a bias, it’s easy to tell the difference. Most rhetoric never actually happens or is a minor factor among many factors. I mostly wait and see what the markets do and then react accordingly, works better for me than trying to predict the future to support an idea.
@MG
“I mostly wait and see what the markets do and then react accordingly, works better than trying to predict the future”
To those who may be still learning or even seasoned III’ers, this statement is pure gold. It took me longer than I care to admit to figure out that interest rate forecasting was not for me.
I was pretty busy today.
I was able to pick up that CoreBridge BB under par. I have also been playing with BEPJ & BIPJ. BEPJ went up so I sold it and rolled into BIPJ. Then I just subbed BEPI @ 7.25% CY for BEPJ.
I also was selling aggressively Pfds under 6%. I had a decent IG stash of them, but time to go. I got rid of RNR-F, OPP-B, GNT-A, SPNT-B (not IG). All were sold with small CG and slurping the last divvy before getting the heave ho!
I forgot I was also buying the RIV-A at over a 6.5% CY.
I’m the opposite I’ve been buying some stable 6%ers. Shifting some of my more volatile 9% issues.
SPNT-B under 6%?
@ GF SPNT-B
Yes it is not <6%.
If you look around you can buy debt @ 8% now. I had a lot of insurance issues in 2024. SPNT-B has been good to me, but need to trim somewhere as I try to stay 100% at all times.
There is no context on posts, but I don't like lengthy posts explaining every little detail unless necessary. Profits are profits no matter what anybody says.
Last comment on why. Liquidity guru Michael Howell believes the Treasury has been performing “not yield-curve control yield curve control.” By that he means that long-end yields have been suppressed 150bp by limiting the supply of new long-end bonds and favoring bill issuance. Under normal circumstances you’d expect the 10-year yield to be closer to nominal GDP + inflation expectations, but it’s been oddly lower. That was Yellen’s doing, as Howell sees it. Is the market anticipating a change?
An explicit policy of YCC would mean the Fed sets an upper limit on a yield, like the 10-year, and steps in to buy to enforce the limit. Japan’s CB has been doing this for a long time.
Despite what Powell says all the time, about only considering employment and price stability in setting rates, there’s always some talking head on TV right after he speaks, imparting a completely different role to the fed than the one role it’s legally obligated to follow…and usually discussing some sinister secret motivation.
I’ll go with Rocky Mountain Hiker here . Debt and deficits didn’t matter until they did. I pity the new administration wanting to extend TCJA . It’s impossible to keep the economy expanding like it has been while cutting deficits. I see a very painful future path for the economy .
Trading stocks was so much easier than investing in them. There’s usually some structural , informational, or software advantage. I’ve proven to be a terrible investor, and especially the opportunity losses!
Thanks to everyone here for all the wonderful information and opinions.
And here I thought the next 4 years was to be blue skies and rainbows. LMAO
Either wonderful or terrible, according to partisans who never put their money where their mouth is. If you want investment advice listen to investors.
Random thoughts on near-term inflation risks.
– Gasoline futures have fallen and have been trading around $2 for three months. Cheaper fuels costs will reduce inflation pressures in many ways.
– Owners equivalent rent is a big part of CPI and is calculated on a 12-month moving average, so the big spike up in recent years is working its way out of the number. If this number stabilizes, it will not contribute to rising CPI.
– Strong dollar/weak yuan could mean China will export goods deflation to us.
I wouldn’t attribute any particular reason to the yield rise without knowing why the specific sellers are selling treasuries. Maybe it’s foreign CBs raising dollars. Who knows?
rocks2stocks –
“I wouldn’t attribute any particular reason to the yield rise without knowing why the specific sellers are selling treasuries. ”
Are you kidding? How about $36.3T in debt and $1T+ in annual interest costs that are only going higher every time the Treasury issues any debt at 2 year maturities or higher? We only take in $5T in annual revenues.
I pity the new Administration, as they may finally have to deal with this problem (Gundlach has been talking about this) – unless they want the Bond Vigilantes to continue to wreak havoc.
The can-kicking may FINALLY be coming to a welcomed end. We simply can’t grow our way out of this problem any longer.
DOGE, DOGE, DOGE. They will have their hands full and many folks fighting them every inch of the way.
Papa-
The huge deficit spending has been going on for quite awhile without triggering a rise in long yields. In fact, yields were falling between April and mid-Sep, when the t-bond selloff kicked in. You have to tell me what changed and why someone sold.
Okay, it’s kind of obvious that mid-Sep was when the Fed cut 50bp and has cut more since at the short-end. Was the selling that ensued due to traders unhappy with the Fed downplaying inflation risks?
Also in September, DXY (dollar index) reversed and rallied hard. Has the strong dollar pressured foreign CBs to sell treasuries to raise dollars for oil purchases? Japan and Europe depend on imported oil. Both the yen and euro are off sharply.
What else?
“People” have been saying forever that the debt and deficits don’t matter. Maybe we’re just at the point where that is no longer true. If so, it’s gonna get ugly for the markets if something does not change (for the better).
papa doc The can-kicking may FINALLY be coming to a welcomed end. We simply can’t grow our way out of this problem any longer.
IMO, you are ignoring the will of politicians to get themselves re-elected. It will take a true black swan event to force a change. The Fed will be the lender of last resort and keep buying Treasuries as needed to finance government mandated spending such as payment on existing debt, social benefits and defense. Which, I think, means continued inflation. We’re obviously not going to grow our way out of it. We will just deflate the dollar and will be able to do so because it is the only realistic reserve currency.
rock2stocks,
It wasn’t that there were sellers today. There was a large Treasury auction today, which requires many buyers to choose to show up and bid. If they don’t show up or they bid at higher yields, this is what happens. While inflation expectations are relevant (fundamentals matter), sometimes there’s just a technical issue about how many people are ready to buy something on January 7 (technicals matter). We’ll see what happens to the quoted 10-year yield over the next few weeks.
Cervantes-
I wish I understood the impact of Treasury auctions. I’m aware of the huge amount of debt that must be sold and the diminishing capacity of dealers to absorb all of it. However, I watch futures and I see selling.
The next 10 yr auction is going to be a wild ride. Very good chance that pig pile will be participating.
Tim…I think we’re slowly marching to 5% by end of 1st quarter
Keep dry powder handy. Only want to deploy on 4.8-5% yields or if we start a lower yield recovery. Either way. Got what I wanted during the holiday shenanigans.
Eventually Fed will have to do QE, fund all the government deficit with rolling T-Bills forever, or maybe something new.
Seems as though inflation is sticky and if you’re the government you should pick inflation over deflation any day of the week.
Ignorant question: Why do we have to create debt when we create/print money. Why can’t we fund things by controlled generation of money? Is it because it would cause more inflation?
Marketwatch shows the 30-year already at 4.919% today.
I left it out, but I was referring to 10 year 4.8-5% yields