Displaying items by tag: Treasuries

(New York)

The bond market is a powder keg that may have only started to explode, says ING. “The bond market has been sitting on a powder keg since last week. Attitude towards duration among fixed income investors has grown cautious, to put it mildly”, says Padhraic Garvey, regional head of research for the Americas at ING. “In this context, we do not blame investors for exiting at the first sign of a sell-off”, he continued.

FINSUM: Investors are currently terrified about inflation and it is hitting Treasury yields and tech stocks squarely on the chin. Our opinion is these fears are overblown and this is a market overreaction, especially as it regards tech stocks. These stocks are losing despite the fact that underlying fundamentals strongly favor the growth of tech earnings.

(Washington, D.C.)

Yellen, former chairmen of the Federal Reserve, was confirmed by the Senate in her nomination for secretary of the treasury. The 84-15 vote reflects both Republicans willingness to work with the Biden administration on economic issues, and Democrats desire to brand their own economic reactions to the covid crisis. Yellen, previously at Brookings Institution, has a decorated history in public service working for Clinton administrations council of economic advisors, CEO of San Francisco regional federal reserve bank, and chair of the Federal reserve. Yellen faces many challenges in her role as treasurer both with the current state of the economy and the looming U.S. debt. Yellen plans to work closely with current Federal Reserve Chairman Jerome Powell to address the U.S. economy.

FINSUM: Yellen historically is known for reading the economy through the lens of the labor market, so expect her policy guidance to be especially informed through a variety of labor market indicators. Additionally expect Yellen’s policy to be more expansionary than a previous administration, but she is weary of the U.S. current debt and has denounced the large deficits supported by Modern Monetary Theory.

(Washington)

The market has been increasingly betting that Biden is going to win the election, but there is still a great deal of uncertainty. The outcomes seem like almost diametrically opposed routes for the country, and accordingly it feels like many asset classes could head in opposite directions depending on the outcome. With that in mind, Savvas Savouri of ToscaFund Asset Management, has published a very interesting and clear diagram explaining how each asset class will react to either a Trump or Biden win (see above). The most interesting thing about this is how similar the response will be across several asset classes. For example, no matter who wins, it appears likely that commodities, gold, US domestic staples, and exporters will gain, while in either scenario, Treasuries, REITs, and the Dollar will lose.

FINSUM: This is an excellent diagram that gives a concise view on how things may change following either a Biden or Trump victory. Two things jump out to us here. Firstly, that tech shares look likely to lose if there is a blue wave; and secondly, that the Dollar is headed down in either outcome, so exporters are likely to do well. It is easy to imagine that a blue wave would result in a broad rally of the S&P 500 that is not led by tech.

(New York)

Investors need to keep a very sharp eye on the bond market. The yield curve is steepening without any associated rise in economic activity. The reason why has to do with the election. Biden has been rising in the polls, and investors have been increasingly betting he will emerge victorious as part of a blue sweep. If that happens, it is assumed the US would issue a great deal more debt to fund stimulus packages. This means there would be significantly more Treasury bond supply than at present, and potentially calls into question the credit of the US government. As evidence of this trend, the spread between 5- and 30-year Treasuries just hit its largest since 2016.

FINSUM: This is a potential black swan event that no one has seen coming. The election seemed like it would be a dead heat through election day, but if the needle moves more towards Biden, the whole picture for fixed income will change.

(New York)

The bond market is usually ahead of the stock market in predicting and reacting to the economy. It seems to be doing so again. While stocks have had a huge run higher, bond yields have largely been stuck at very low levels. The ultra-low yields of around 0.7% on the ten-year Treasury mean that bond investors see a long, hard, recovery looming and many years of continued aggressive monetary stimulus by the Fed.

FINSUM: Stocks seemed to have gotten a dose of realism over the last two weeks, but yields may be more reflective of the difficulty of the recovery to come.