Yesterday, March 2, yields on all Treasury maturities closed above 4%. Today, that 4% level hasn’t held across all maturities with the 10-year Treasury yield dropping back to 3.96%, down 9 basis points, as of 3:00 p.m. But I think yesterday’s surge to a 4% yield for all maturities marks a milestone in this market–and the upward march of interest rates as the Federal Reserve shows signs of raising rates higher and longer.
Today, February 21, the yield on the 10-year Treasury rose 14 basis points to 3.95%. Other Treasuries dropped in price and showed higher yields as well.
The stock market continues to hope that Christmas has come early this year. Or more precisely that the January effect rally, which normally kicks in around the middle of November is already in place and pushing stocks higher.
What’s the evidence? At this point it’s mostly speculation–but I don’t think investors should ignore the possibility.
First-time claims for unemployment rose to 219,999 for the week ended October 1, Labor Department reported this morning. Economists had projected a rise to 203,000. The prior week showed a revised 193,000 initial claims. Financial markets aren’t sure how much this means for tomorrow’s report on September employment. It could be the harbinger of a drop in the rate of job creation and an uptick in unemployment. On the other hand, the ADP job survey came in hotter than expected.
The yield on the 10-year Treasury has dropped a whopping 36 basis points in the last month to just 2.65%.
That’s either a strong vote that the economy is about to move into a deeper recession or that the Federal Reserve won’t raise interest rates by as much as had been anticipated earlier in the year. Or maybe a vote for both. But that drop in yield (with a rise in Treasury prices) has certainly added a bit of fuel to the current Bear Market rally. And if you’re trying to figure out how long that rally might last, I suggest you add the direction of Treasury yields to your list of indicators to watch.
My one-hundred-and-forty-secondYouTube video “The Treasury Yield Tide Is Rising” went up today. Yields are up for 2-, 5-, and 10-year Treasuries. I’m also seeing higher expectations for more rate increases in the coming Fed meetings with the odds rising for a 75 basis point increase in July and/or September. I think these extreme bets on a 75 basis point increase have more to do with attitudes toward inflation than with actual belief in a 75-basis-point interest rate increase in those two months–that is that it will be tougher to bring it under control than the Federal Reserve now thinks. But these extreme positions are something to watch going forward. To one way of thinking they represent the chance for a rally in stocks if traders retreat from the 75-basis-point camp.
After threatening last week to bowl through the 3% level that has become a psychological benchmark, Treasury yields moved a tad lower today as Treasury prices moved up. The yield on the 30-year Treasury which hit 3.09% on Friday, June 3, and then 3.18% on Monday, June 6, pulled back today to 3.13%. The yield on the 10-year Treasury, which is the benchmark for mortgage interest rates, closed down 6 basis points to 2.98% today after breaking higher to 3.04% on Monday.
My one-hundredth-and-thirtieth YouTube video “Market gives Fed a razzberry” went up today. Yesterday, the Fed announced that it would raise rates by 50 basis points but that it was not looking to raise by 75 at the June or July meetings. In response, the market had a huge rally, especially in tech stocks, as it had b been widely assumed that those meetings would see the larger 75 basis-point increase. All that has changed today, when upon second thought the market no longer likes this news, with the S&P 500 and NASDAQ Composite giving back all the gains they made yesterday plus a little more. I look at a few specific stocks, like Amazon and Advanced Micro Devices, and talk about why I think the selloff in tech stocks is going to continue.
The financial markets have moved from pricing in 50 basis point increases in the Federal Reserve’s target interest rate at the May 4 and June 15 meetings to considering the possibility that the Fed will increase rates by 75 basis points in June and July. A 25 basis point increase is “business-as-usual” for a Fed tightening. 50 basis points at a pop (it takes 100 basis points to make up 1 percentage point) would be very aggressive, but comments from Fed chair Jerome Powell this week certainly put a move of that size on the table.A pair of 50 basis point increases would be the sharpest move by the Fed since January 1982 when the Volcker Fed was fighting to control double-digit inflation
Minutes from the March meeting of the Federal Reserve released Wednesday, April 6, showed that only Russia’s invasion of Ukraine kept the central bank from raising benchmark interest rates by 50 basis points instead the 25 basis-point increase the Fed actually instituted at that meeting. “Many” Fed officials viewed one or more half-point increases as appropriate going forward if price pressures fail to moderate. The minutes showed the Fed proposing to shrink its balance sheet at a maximum pace of $60 billion in Treasuries and $35 billion in mortgage-backed securities each month. That’s in line with market expectations
Some financial trends make the transition from directional moves driven by events–the war in Ukraine or a speech by Federal Reserve chair Jerome Powell that opens there door to a 50-basis-point (instead of the “business as usual” 25 basis point move) increase in interest rates–to trends with their own momentum. These momentum trends then run until events arise to stop or reverse the trend Higher bond yields may have entered into that “momentum” phase last week. The yield on the 10-year Treasury ended Friday, March 25, at 2.47%, up 10 basis points on the day.
The yield on the 10-year Treasury jumped 7 basis points to 1.84% today, February 3. The move was in concert to higher yields on United Kingdom and German bonds after the Bank if England and the European Central Bank signaled worry about rising inflation at the central banks meetings. The key move was the rise in the yield on the German 10-year Bund. The yield on that maturity had been below 0% until hi week when it jumped to a positive 0.15%.
