On Friday, President Donald Trump fired BLS chief Erika McEntarfer following a jobs report that showed unemployment rising on his watch and that revised previous months’ job gains sharply lower. That has put TIPS (Treasury Inflation Protected Securities) treasury bonds designed to protect investors from the effects of inflation, in the front trenches of an impending battle over the polarization of government economic data.
Thursday’s auction of $22 billion in 30-year Treasuries saw stronger-than-expected demand from buyers. The fear going into the sale was that on investors–especiall overseas investors–would shun the U.S. government’s longest maturity.
But the sale went forward at a yield of 4.844%, below the yield at the auction deadline. That was a sign of solid appetite, and 30-year bonds proceeded to extend their gains, leaving the yield down about 8 basis points at around 4.84% in late afternoon New York trading.
The U.S. Treasury is set to sell $22 billion of 30-year government bonds on Thursday, part of its regularly scheduled borrowings. In normal times this would be a routine bond auction. But these aren’t normal times. So the auction has taken on the role of an indicator of how fast the U.S. debt “problem” is turning into a crisis–and in particular as a measure of which big institutional investors are shunning the long-end of the Treasuryy market.
Today’s Hot Money Moves NOW video is Short the 30-year treasury. In my last video, I talked about how complacent the market seems—but one area where there’s definitely no complacency is the long end of the bond market, especially the 30-year Treasuries. Investors worldwide are worried about rising U.S. deficits, soaring debt interest payments, and Congress’s inability to pass a budget on time. If you want to capitalize on this, one way is to short long-term Treasuries. You could use options, but timing those can be tricky. Instead, I recommend the ProShares Short 20+ Year Treasury ETF (TBF), which moves inversely to long-term Treasury bonds. It’s not cheap (0.95% expense ratio), but it’s up 16.3% in 2024 and has solid momentum with a gain of 6.76% in the last three months. I’m adding TBF to my Volatility Portfolio and my Jubak Picks Portfolio as a hedge against Treasury risks. You may want to wait until the spending bill feels a bit more settled, but I’m jumping in early to track how it plays out.
The U.S. Treasury on Tuesday said it plans to cut the size of its four-and eight week bill auctions and that it will only sell $75 billion of four-week bills on Thursday, $10 billion less than the previous offering at that tenor. It will also offer $65 billion of eight-week bills, which is $10 billion less than the previous auction. It kept the size of the 17-week bill to be sold Wednesday unchanged at $60 billion. The problem is that the Treasury is running up against the debt ceiling.
Today’s video is Are We Too Complacent About Complacency? The market seems extremely relaxed right now, even though it probably shouldn’t be. Moody’s recently downgraded U.S. debt, yet the market barely reacted—in fact, stocks even ticked up slightly. Then, Jamie Dimon, JPMorgan CEO, warned about rising risks—geopolitical tensions, inflation, tariffs—but the S&P 500 only dipped a tiny bit, and the VIX (the “fear index”) stayed stubbornly low. Even stranger, investors are piling into more risk—-SPACs (remember those?) are suddenly back in fashion, and there’s a growing push to roll back financial regulations. Meanwhile, Treasury yields inched up, but overall, the market is acting like nothing’s wrong. Are we being too complacent? It sure seems that way. Some investors might be hedging quietly, but the broader market just keeps charging ahead like everything’s fine and I don’t think it is.
The yield on the 10-year U.S. Treasury is up 13 basis points to 4.43% as of noon New York time today as bond prices fell on strong selling. That’s extraordinary–usually Treasuries rise in price and yields fall when fear stalks Wall Street–and cause for worry. Just a few days ago, the 10-year Treasury had traded below 4%. Yields on the 30-year bond rose significantly today as well, at one point on Wednesday topping 5%.
“The global safe-haven status is in question,” Priya Misra, a portfolio manager at JPMorgan Asset Management, told Bloomberg.
If you’re an investor looking for income, you’re facing what I’d call a Yield Drought. And this is no temporary dry spell. Things on the income investing front look they’ll get worse before they get better. Unless a financial crisis intervenes in 2025 to make everything else much worse and the yield story much better. Because, you see, there are two parts to the current Yield Drought.
How views on interest rates have changed since the start of 2024. Then, in January, the consensus view called for as many as six interest rate cuts from the Federal Reserve in 2024 for a total of 150 basis points in cuts to the Fed’s benchmark interest rate. Today, after a dip in first quarter GDP below a 2% annual rate and an uptick in core PCE inflation, the markets are pricing in just 33 basis points in rate cuts and quite possibly no cut until the Fed’s December 18 meeting.
One down and billions more to go.
Yesterday’s big auction of 2-Year Treasury notes saw rock solid demand that let the day pass without a big, destabilizing drop in prices and a jump in yields. Today, in Round #2, the Treasury is set to auction off $70 billion in five-year notes. So far, at least, the sale looks like it will see solid demand again. Though, can I say, You ain’t seen nothing yet? Treasury is likely to increase its monthly issuance of the seven main notes and bonds (not including TIPS) by nearly 60% in 2024 to $354 billion in August 2024, from the $222 billon it issued in July 2023, according to “Neutral Issuance” scenario in the presentation by the Treasury Borrowing Advisory Committee.
It’s been a tough month for Treasuries with yields rising on a re-thinking of when the Federal Reserve might begin to cut interest rates. The yield on the 10-year Treasury closed at 4.62% on Friday. That’s an increase in yield of 35 basis points in a month. (When yields climb, bond prices fall.) And this week the Treasury will auction a combined $183 billion of two-, five- and seven-year Treasury notes. Ans that’s ahead of the latest update on the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure.
After Israel and its allies (with the help of some Arab states that don’t want to see a wider Middle East war and who aren’t thrilled with the growing power of Iran and its proxies) succeeded in shooting down almost all of the drones (170), ballistic missiles (120), and cruise missiles (30) launched by Iran against the country, will the two sides both declare victory and claim that honor is satisfied or will one or the other escalate the war with another round of attacks? As of early Monday trading in Asia, the oil and gold markets have reacted with concern but not panic. Gold, up 13% already this year to a record above $2,400 an ounce, moved higher but the gains were relatively modest. Spot gold climbed 0.8% to $2,361.92 an ounce as of 6:20 a.m.in Singapore. The global oil market opened to the upside but by less than 1%. And prices have been steady to slightly weaker since then.
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