June 8, 2023 | Daily JAM, Morning Briefing |
A flood of Treasury bill, note, and bond sales will drive yields over the next few months as the U.S. Treasury rebuilds a cash account drawn down to the splinters at the bottom of the barrel during the debt ceiling crisis. On Tuesday, the U.S. Treasury clarified the schedule for auctions designed to refill those coffers. The timing, in my opinion, points to a July peak in Treasury yields. (And don’t forget that the Federal Reserve meets on July 26. Today, June 8, the financial markets are saying that there’s a 75.8% chance of either 25 or 50 basis points of interest rate increases at the conclusion of that meeting (some combination of rate increases at the June 14 and July 26 meetings) with odds at 49.9% of just 25 basis points of increased to the Fed’s benchmark rate, now at 5.00% to 5.25%, as a result of the two meetings. I’ve suggested buying the 2-year Treasury on that July peak.
June 5, 2023 | Daily JAM, Videos |
Today’s Quick Pick is 2 Year Treasuries. Ten-year Treasuries with a 5% yield may still be a long way out, but Two-year Treasuries now have a yield of 4.5%. Rates may continue to go up in the short-term and the Fed is likely going to raise interest rates again in June or July, but this is a good place to start a position in these Treasuries. You can, of course, get a CD with a 5% yield, but the CD won’t earn you capital appreciation. If rates go down when the Fed stops raising rates, treasury yields may go down, but the bond may go up. We’ll likely see a peak in rates in the third quarter, so at the moment, I think Two-year Treasuries are a good buy.
June 4, 2023 | Daily JAM |
Maybe “expect” is the wrong word. Maybe I really mean “look for” as in “look for an opportunity” to buy Treasuries at a short-term peak in yields. With a debt filing extension in effect and default off the table, the U.S. Treasury can now turn to the task of rebuilding its cash buffer. That means selling lots of Treasury bills, notes, and bonds. How many? Well, at least $500 billion with. And some Wall Street estimates put the selling spree at $1 trillion by the end of the third quarter of 2023. The selling begins with the auction of $170 billion in Treasury bills on Monday, June 5. I expect two consequences.
February 18, 2023 | Daily JAM, Short Term |
Remember the good ol’ days when Treasuries paid 0% or so and you had to give a bank your toaster to open an account, paying 0.01%? Right now you can find a CD paying 5%–and it doesn’t require locking up your money until the sun goes super-nova either.
Today, the 12-month Treasury closed with a yield of 4.99%. And the 6-month bill paid an even higher 5.02? You can find a bond ETF with an SEC yield of 4.63%. And even a money market fund paying 4.45%. What’s the case for stashing some of your cash in something “safe” as the stock market looks like it’s about to go into one of its periods of volatility? And what’s the best choice when you’ve suddenly got so many vehicles offering to pay you 5% or so? In today’s post, I’ll sketch out the pluses and minuses of these alternatives.
January 25, 2023 | Daily JAM, Videos |
Today I posted my two-hundred-and-twenty-eighth YouTube video: Don’t Pay for the Illusion of Control. Today’s topic is: Don’t Pay for the Illusion of Control. The market is rallying on the expectation that the Fed will reduce its interest rate increases to just 25 basis points on February 1, after the previous hike of 50 basis points. The belief is that the Fed will continue to wind down rate increases until they eventually stop after having vanquished inflation without tanking the economy. I have a few concerns about this rally. The market has priced this as 100% likely, so if the Fed disappoints with another 50 basis point increase, the market will not react well. Another huge problem with the idea that the Fed is controlling the market is this: there is no controlling this economy. Fed rates are just one of the factors in a very complicated economic picture right now. Here is a sample of some of the other things that can and will affect the market: as the Fed has reduced its balance sheet (and therefore reduced its supply of treasuries), the debt ceiling crisis has resulted in a lower supply of treasuries from the Treasury, and banks are moving their money to reserves, while money market funds are looking to buy bonds and there are none to be found. On a global scale, China’s battle with COVID could cause as many as one million deaths and slow that economy, while Beijing pours money into its financial system. Japan has seen an unusual surge in inflation and the fighting in Ukraine will likely get worse this spring as Russia looks to regain control of the war. All this to say, the Fed does not control the economy and I wouldn’t put all my eggs in the Fed basket.
December 5, 2022 | Daily JAM, Videos | To subscribe to JAM you need to fill in some details below including, ahem, some info on how you'll pay us. A subscription is $199 (although if you're subscribing with one of our special offers it will be lower) for a year for ongoing and continuing access to the...
November 4, 2022 | Daily JAM |
Right now, the Federal Reserve’s benchmark short-term interest rate stands at a range of 3.75% to 4.00. Expectations on Wall Street point to another 50 basis points in December and another 50 basis points in February.
Which would take the interest rates up to a range of 4.75% to 5.00%. Would that be the peak?
October 19, 2022 | Daily JAM, Morning Briefing |
The two-day bounce in U.S. stocks stalled today. The Standard & Poor’s 500 closed down 0.67% and the NASDAQ Composite was down 0.40%. Why? Increased sentiment that the Federal Reserve will raise its target short-term interest rate by a hefty 75 basis points at its November 2 meeting and its December 14 session. While the 75-basis-point increase at the November 2 meeting has been expected for some time, the shift in sentiment for the December 14 meeting is new.
October 15, 2022 | Daily JAM |
Be on the lookout for extra volatility in the market for Treasuries. …signs of stress in the market for U.S. Treasuries. Treasury Secretary Janet Yellen is concerned, she said on Wednesday in answering questions after a speech. “We are worried about a loss of adequate liquidity in the market,” Yellen said. The balance-sheet capacity of broker-dealers to engage in Treasuries market-making hasn’t expanded much, while the overall supply of Treasuries has climbed, she noted.
June 23, 2022 | ABBV, Daily JAM, Dividend Income, GOLD, Jubak Picks, PXD, Special Reports |
The advice is sound, very sound. Move part (at least of your portfolio to cash and sit out the worst of this bear market on the sidelines. And since you have that cash in hand, you’ll be ready to snap up bargains when the market has put in a bottom (or near the bottom, or on the way up from the bottom…or something.) But right now that’s easier said than done.
April 11, 2022 | Daily JAM, Short Term, You Might Have Missed |
Economists surveyed by Reuters are projecting that inflation, as measured by the Consumer Price Index (CPI), will climb to 8.4% year over year for March against an 8% rate in February when data is released tomorrow before the open of the U.S. stock market.
March 29, 2022 | Daily JAM, Morning Briefing |
Yesterday, March 28, a substantial piece of the Treasury yield curve fell into inversion. The yield on the 5-year Treasury climbed to 2.57%. Which put it above the yield of both the 10-year Treasury at 2.46% and the 30-year Treasury at 2.55%.