Displaying items by tag: Treasuries

Wednesday, 14 March 2018 14:08

Yields Above 3% Will Spell Doom for Stocks

(New York)

Investors beware of yields. That is the message from one of Wall Street’s most respected names in fixed income. In particular, Jeffrey Gundlach is warning that if ten-year Treasury yields get to over 3% then it will spell doom for stocks. Yields are currently at 2.84%, down from a peak on February 21st of 2.95%. “My idea that the S&P would go down on the year would become an extraordinarily strong conviction as the 10-year starts to make an accelerated move above 3 percent”, says Gundlach.


FINSUM: So the argument here seems to be based on the idea that stocks would become less attractive as investors could earn more from bonds given rising yields. That makes some sense given the increasing size of the retirement population.

Published in Eq: Large Cap
Monday, 12 March 2018 10:27

Investors Brace for Inflation Surge

(New York)

One way to judge the fear level of investors in regards to inflation is to look at flows into TIPS, or Treasury Inflation-Protected Securities. The bond market had its biggest bout of volatility in around a decade over the last 6 weeks, and one big upshot of that has been a surge into TIPS, as investors seek a safe haven for the strong rise in inflation which they see coming. BlackRock’s TIPS ETF, for instance, just hit a new high with $25 bn under management.


FINSUM: Interest in TIPS has a lot to do with the Fed and rates, but also with the government’s budget deficit, which is set to widen.

Published in Bonds: Total Market
Wednesday, 28 February 2018 08:18

Goldman Says Stocks Will Dive 25%

(New York)

All those worried that another bout of volatility is around the corner should definitely pay attention to Goldman’s latest announcement. The bank says stocks may drop 25% this year, but the call has one important caveat—Treasury yields would need to reach 4.5%. Goldman only thinks yields will rise to 3.25% by year-end, but a “stress test” scenario where they rise to 4.5% “would cause a 20 percent to 25 percent decline in equity price”, says Goldman’s research team. Some think stocks will rise until yields reach the 3.5 to 4% range.


FINSUM: Yields are not going to get anywhere close to that level unless the Fed goes crazy with hikes, which we highly doubt. There is a big pool of natural bond buyers in retirement age, and we think that will allow yields to rise only slowly.

Published in Eq: Large Cap
Tuesday, 27 February 2018 11:04

The Fed May Purposefully Let Inflation Run Hot

(New York)

Bonds have stopped their losses and there is a clear reason why—the market does not believe that the Fed is going to be as hawkish as many feared. The Fed’s January minutes were not as aggressive on raising rates as many suspected, and now bond traders are afraid that inflation may run quite hot without the Fed doing anything about it. Therefore, there is upward pressure on yields, but that force is being contained by the fact that rates are unlikely to be hiked aggressively. The current consensus, based on Fed comments, is that inflation could run to 2.5% before the central bank would become concerned.


FINSUM: The economy is doing quite well at the moment and the Fed doesn’t want to disrupt that by hiking too early.

Published in Eq: Total Market
Friday, 23 February 2018 10:26

Bond Traders are Doubting the Fed

(New York)

Despite a seemingly very hawkish Fed, bond traders just aren’t buying it, according to Bloomberg. Traders think the economy is burning very hot, and that the Fed, despite rhetoric, is actually content to just stick to only gradual rate hikes. According to one CIO, “The bond market is telling the Fed we see rising inflation pressures and if you are going to be gradual and crawl into three more rate hikes this year we are not going to wait around”, continuing “The long end of the yield curve is tightening for the Fed”.


FINSUM: Fed minutes did not show that the bank was considering four hikes this year, and the market thinks they should be.

Published in Bonds: Total Market
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