Good Friday AM,
No economic data today and not much until the later part of next week on the radar.
For some reason though, bonds are having a welcome and deserved up day. Clearly, we touched the top of the current yield channel and now will hopefully work our way back down. If we can crack 4.21% (currently at 4.24% down from yesterday’s 4.32%) it will set us up for 4.10%. Doubtful this will play our today, but we could see it come together next week. I don’t recommend floating in this market but the rest of the trading day will likely be quiet.
Sobering… Americans seemingly can’t stop living paycheck to paycheck.
According to a LendingClub report, 61% of U.S. adults in June were relying on their next influx to cover basic expenses. And according to a survey from Bankrate, more than 70% of Americans don’t feel financially secure. When you break down the math, it’s easy to see why. The typical U.S. worker takes home about $3,300 per month after taxes and benefits, based on data from the U.S. Bureau of Labor Statistics. Meanwhile, monthly expenses can reach $2,800, amounting to roughly 85% of median take-home pay. (And that’s before childcare or debt payments.)
I have been trying to better understand the last two weeks of trading in bonds. It still does not compute but it is what it is. I did read a reasonable explanation from Bloomberg which is below. I am digesting it but wanted to share as it seems plausible.
There’s an optimistic argument to be made for why long-dated Treasury yields are screaming higher: bond investors have gone from bracing for a recession to pricing in a soft landing.
“The 10-year and the 30-year Treasury yield is telling you it’s not necessarily inflation, but growth is a lot stronger than I think most have anticipated,” Mary Ann Bartels, chief investment strategist at Sanctuary Securities, said on Bloomberg Television. “When I look at where we could potentially go on the 10-year, I think we could go to 4.8 to 5%, and I think the 30-year can go to 5%.”
Yields on 10- and 30-year Treasuries soared to within a few basis points of their 2022 highs this week, evaporating year-to-date gains in the process. There’s plenty of potential catalysts: ballooning Treasury supply, a still-hawkish Federal Reserve and a US economy that has yet to show the strain of more than 5 percentage points of rate hikes.
That economic resilience — and the expectation it will continue — help explain why long-end yields have come unmoored over the past month. A series of solid data prints have pushed Citigroup Inc.’s US economic surprise index close to the highest levels in nearly two and a half years, while economists are tripping over themselves to push back their recession calls.
Meanwhile, inflation expectations remain incredibly benign. As real yields rocket higher, 10-year breakeven rates currently stand near 2.32% — well below last year’s highs.
But if the bond selloff can be chalked up to the soft landing getting priced in, then how do you explain what’s going on in equities? The S&P 500 is poised for a third straight week of losses, tied for its worst streak this year.
Please remain safe and stay healthy, enjoy the weekend and first, make today great!
