An ‘Epic’ Treasury Selloff, Kashkari’s Stargazing And Bad Election Optics
I'm a bit reluctant to editorialize heavily around what one mainstream financial media outlet described earlier this week as an "epic" two-day selloff in Treasurys.
To me anyway, "epic" felt like a stretch, if only because we've all become desensitized to big swings in bond yields in the 2020s. In addition, it was difficult to disentangle macro factors and Fedspeak from supply overhang -- if markets needed an excuse to bring forward a concession for this week's auctions, the jobs report provide
Seems to me just more “noise” in the cacophony that’s been the markets over the last few years . I’m neither smart, trained nor nimble enough to trade the bond markets but seeing a likely medium-long term downward direction for rates, thought yesterday a good day to add incrementally to our growing collection of long duration Treasury ETFs.
The famous R-Star debate… I think one more rate hike will keep Trump from being elected and stop Iran’s proxies from bombing our bases.
R* – put that in the same category as perfect competion, EMH, and CAPM. Very useful concepts for academics and pundits but hazardous for policymakers making decisions and investors putting money to work in the real world. I would rather look at market statistics than posit about R*. R*, probably, if it exists at all is not a stable variable anyway. The exchange rate of the $, price indicies, leading employment indicators, value of gold and other commodities all are better indicators of monetary policy. They are telling a story right now that monetary policy is somewhat restrictive but not overly so. That story can change quickly.
Rate (in)stability and its effects on investing and corporate finance was the subject of my Masters Thesis in 1967. Specifically, I used public utility finance as an example. As far as I can see nothing’s changed materially. One can’t really find hard numbers to make lower risk investments with any confidence when the inputs are flying around like passengers with no seat belts in a careening stagecoach. We can get impressions but will always find it hard to do anything important with confidence.
Naive question … ‘back in the day, … when rates were bought / sold’ – not traded in millisecond like equity, futures and options trades – were these high amplitude swings so common (a stdv. look back, maybe)? -an investing paradigm shift, or technology evolution? Snaps right into your model, …maybe.
I know it’s silly to feel sentimental about FED officials. But, I miss Kaplan and Rosengren.