Trivia time!
That’s what it often comes to during the final days of August, when “out of office” auto-repliers testify to the prevalence of Labor Day vacations.
Here’s the trivia question: When was the last time the 200-day moving average for 30-year US yields eclipsed 5%?
Before you endeavor an answer, note that the current subscriber pool includes some readers — not many, but a handful — who weren’t yet born the last time the long bond’s 200-day sported a five-handle.
The figure above shows you both the 200-day and the 100-day. The former was last above 5% in early 2005, when Benjamin Harrison was US president and Nicholas I ruled Russia.
Currently, we’re at 4.93% on this “all-important metric,” as BMO’s Ian Lyngen described it. “Should we see [a] push into five-handle territory, it would mark the first time the 200-day has breached 5% since the tail-end of a period in which five-handle bonds were the norm, rather than the exception,” he remarked.
That speaks to concerns that five-handle long bonds are about to become the norm again.
The figure’s above a reminder: 30-year yields have closed above 5% every trading day since the Iran ceasefire collapsed.
Does the 200-day actually matter? Said (asked) differently: Is this more than trivia? Yes and yes. As technical momentum signals go, the 200-day’s like Ron Burgundy: Kind of a big deal.
While we’re “still a distance away,” the bearish trend’s something to be “mindful of” in the context of questions as to “whether we’re seeing a shift toward a higher rates regime,” Lyngen went on.
As for the 100-day, it crossed 5% earlier this month. The last time it boasted a five-handle, 17-year-old Fogell was living his best life as 25-year-old McLovin. (Someone will get it.)
(Following is arrant speculation from a guy who really should stick to micro-picking stocks.)
Seems to me that, absent dramatically negative employment data, the Fed has to raise rates in September.
Warsh’s Jackson Hole speech may have been no-clothes bravado, but it read hawkish. Fed has let inflation run hot for five years, responsibility is the Fed’s alone, financial conditions are not restrictive, no improvement in inflation trend, keeping PCE measure, Fed’s tool for inflation is rates. For all the coyness about no-guid, he said what the Fed needs to do. At least three FOMC members are openly pushing for hikes, does Warsh want to get four, five, more dissents?
Market skepticism about Warsh’s willingness to raise rates is reflected in rising long yields. But the market is not doing Warsh’s job for him – 10+ yr rates affect the economy too slowly and/or target already-weak sectors (housing). Instead, market is raising the stakes on whether Warsh does his job.
Suppose Warsh does raise rates in Sept. 25 bp is not a real opening bid, 50 bp is needed to convey resolve. Absent guidance, market will extrapolate more hikes, say 100bp by year-end. Stock market typically corrects at the start of a rate hiking cycle – remember 2022.
Suppose Warsh does not raise rates. After his blustery JH speech, his credibility will “poof”. Market will push harder on long rates. Sending 10Y through 5% will not be stock market positive.
“Sending 10Y through 5% will not be stock market positive”.
Mike Wilson disagrees.
It’s not just Wilson. )’m seeing more & more commentary from other financial strategists (shills) arguing that higher interest rates will present no big problem for stocks and/or the broader economy. Including from JP Morgan.
For example, in MarketWatch today: https://www.marketwatch.com/story/are-rising-bond-rates-really-so-bad-maybe-not-say-these-exports-1af9e683?st=Qom6Tq&reflink=desktopwebshare_permalink
At some point, the hyperscalers (and hangers on) will look at the cost to borrow and may reconsider how aggressive they want to be about funding data centers.
Not saying it’ll be a full on implosion, but it’ll be sufficient to create questions in the market about the never ending growth story for semis and maybe Nvidia only grows revenue by 40% next year instead of 70%.
The market drops (although hyperscalers might benefit if they pull back on spending and hold the market up and limit the drop). The wealth effect starts to fade and the economy doesn’t look so hot anymore. We end up back in a world of Fed intervention and NIRP.
Wouldn’t we simply expect financial repression in the latter case?
This morning Bessent was priming the pump for another ‘hawkish hold” in September. Bessent said, “Traditionally you don’t raise rates into a supply shock” meaning the Iran fiasco, and “core inflation has remained very restrained” and “not going to speculate on the Fed.”
Last week, Stephen Miran, said a rate hike right now would be a mistake. He argued that recent inflation data are distorted, not genuinely elevated.
So Warsh has a few problems, because if FOMC doesn’t hike he may as well be Hassett with a nice wig.
Superbad
It’s like a sexy cheeseburger.
Technically, I don’t have a first name.
Rates would have to go down below 5% before February’s lull in rates rolls off the chart to keep the 200-day sub 5%.
McLovin is not a name one forgets.
Long before anyone anyone (with the exception of The Simpsons) thought Trump might be a viable politician, McLovin showed us all the value of a staged existential crisis on swaying public opinion.
Benjamin Harrison was president in 2005? Did I miss something? How abour Bush II?
In answer to your question, yes. You missed something.
I believe our time frame on what can hapen to rates is too connstrained by just the past 20 years or so.
Look a little further back and see what was the normal back then.
https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
A 5% 10 year is nothing but a level that is unfamiliar to many.
3% reals? 4% reals?
In light of the ridiculous times we are currently lving through, why not?
I literally laughed out loud at Harrison and Nicholas I – and then I thought “yeah I feel that …” And a few have already remarked on your kick-ass innuendos!
Come the Reaper!
Come the Reaper!