Character Matters

Character Matters

What can we say about the week that was? Well, we can say yields rose. In fact, they rose quite a bit. 10s were near 1.35% on Friday afternoon, with yields cheaper by nearly 6bps out the curve. This was the week when rate rise seemed to give equities pause. Character matters. In this case, the character of the bond selloff. 10-year reals jumped ~20bps over just a handful of sessions. That's the most since the manic days of last March and before that, the most since the 2016 election. "One t
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3 thoughts on “Character Matters

  1. Jawboning the 10 year yield is fine, but looking back at any 10-year spread for the last 50 years — it seems like this recent pop back to normalization in the rate curve is a knee-jerk covid response which will fade away in a matter of months. With the way all markets are freaking out, Treasury yields obviously may have sustained madness and not fall into a previous or prior normal range — but a huge upward spike from here seems unrealistic.

    With that said, the lower range will apparently head to zero and widen the spreads to historic levels in a few months. Apparently the debt plumbing will encounter a Fed deficit ceiling issue soon, related to servicing debt — but, apparently that won’t be a long lasting trend, but more of a mini shock or wobble. In any case, lower end rates will most likely remain low and stagnate. However, as collateral becomes more expensive with short term stuff, that could get weird.

    From what I can tell, servicing the debt isn’t going to be a problem (anywhere) and all the Fed balance sheet fears also don’t matter and it’s doubtful hyper inflation will ever be an issue or realistic concern.

    Thus, there is drama on the horizon but it actually looks like growth ahead, so any slight uptick in yields may actually be a tap on the brakes during this winter storm. The pandemic will also cool things off a bit, because in case anyone isn’t paying attention, it’s still very active and very deadly — and the vaccine race isn’t really going that well. It also isn’t helpful to have a a more virulent virus spreading while tens of millions ignore it and the vaccine — that’s not a smart combination!

    Here’s a weird FRED chart, basically playing with the 10-yr 2-yr spread and 3 month yield. This suggests to me that things are not great but more than likely going to be fine:

    https://fred.stlouisfed.org/graph/?g=Bfdp

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