Displaying items by tag: bonds

(New York)

The long-time biggest bond shop on Wall Street (actually they are in California) has just put out a stark warning to investors—ten-year Treasuries are going to hit 3.5% in the near term. The manager thinks yields will make it to that level this year but then stall. Above 3.5%, they say, yields would have a detrimental effect on growth and that as yields rise investors will be moving their money into different asset classes.

FINSUM: A 3.5% yield on the ten-year would be a pretty attractive proposition to many, and it seems likely that given how that figure would be simultaneously appealing and a warning of poor future growth, investors will likely move out of equities.

(New York)

We might have just reached an inflection point in the market-economy mechanism. For the first time since 2008, short-term Treasury yields have just reached the same level as equity dividend yields. It is not even the two-year Treasury we are talking about, but rather the three-month, whose yield is now about 1.9%, the same as equities’. The convergence of a number of different yield rates is a strong warning sign of a pending recession. JP Morgan comments that “What has been surprising this year has been the degree to which cross-asset performance has behaved as if the late cycle had already arrived, despite little material change in the growth outlook”.

FINSUM: This is an important indicator. Both bond and stock investors are moving ahead of the economy itself, but their actions seem likely to create the reality they fear.

(New York)

Despite the hopes of investors, yields moved higher yesterday, with ten-year Treasury yields now back above 3%. For a while the momentum higher had been stemmed, but yesterday saw yields move sharply upwards. The move got the Dollar back on track, but it left equities nervous about what may lay ahead. Some market watchers say the recent market moves are a preamble to a correction.

FINSUM: Markets (stock and bonds) are bouncing all around, essentially momentum-less. We think things are going to be this way until a strong narrative takes hold—either trade war and recession, or something that renews the bull market.

(New York)

Individual bond sales to retail clients may be about to take a hit. The reason why is a new set of rules being enacted on brokers that require them to disclose the price at which they bought bonds before they sell them to clients (if it occurs on the same day). The idea of the rule is to give investors a clear idea of the price they are paying for bonds. Brokers are worried that the new rule will cut into their fees and lead investors to stop buying bonds in favor of bond funds.

FINSUM: So we understand the thrust of this rule, but as a counterargument, we ask our readers to consider: what other industries have to disclose their margins to customers during a transaction? When you buy a new iPhone, does apple need to say they have a 90% margin on the phone?

(New York)

There has been a lot of fear about bonds lately. Higher inflation readings, a more hawkish Fed, and 3% Treasury yields have gotten investors nervous. However, bonds might be in for some big gains, especially Treasuries. The reason why is that there is a huge pile of short positons held by hedge funds who are betting against Treasuries. Yet, yields have been stubborn over the last couple of weeks and now it appears the positon might be broken by a strong short squeeze that would send prices higher.

FINSUM: We had not paid much attention to this, but given the weak US inflation reading that has just been released, this may play out very soon.