Have we given up trying to call the top in G7 bond yields?
Because if we haven’t (given up), we probably should. This, like most attempts to call tops, seems a fool’s errand. If my saying that marks the top, well that’d be a further testament to markets’ penchant for making fools of the people who comprise them, wouldn’t it?
On Thursday, 10-year US Treasury yields reached 5.34%, the highest since 2002, when the Ba’athists were still in charge in Baghdad and I was… Jesus Christ, what was I doing in 2002? Making pickups for Big Tom between undergad Wittgenstein colloquiums, I guess.
There’s the chart. Don’t look too hard at it. It’ll burn your retina.
Mercifully (and I’m not sure that’s the right word considering one catalyst might’ve been a haven bid tied to mounting concerns that something’s about to break across the pond), US yields reversed lower around midday, and in rather dramatic fashion.
The figure below gives you some sense of how acute the situation is in Europe.
The OAT-bund spread’s vertical. On Thursday, it was the widest since the European sovereign debt crisis. In the UK, 30-year yields breached 6%. In Italy, 10-year yields are up 140bps since the start of the war and nearly 45bps over the past week alone.
I could go on. And on and on. What can’t go on and on and on is rate rise of that magnitude and rapidity. Something, somewhere will snap. It’s especially disconcerting for France and Italy, given they aren’t monetary sovereigns.
As noted above, the sense of panic might’ve accrued to America’s benefit on Thursday as a bid for the US long-end. And the ferocity of the reversal (10s went from 5bps cheaper to 8bps richer on the day in the space of three and a half hours, before unwinding about half the rally) testified to how quickly a move lower in yields could snowball given what’s gotta be crowded positioning in rate/bond shorts.
The front-end rallied too, amid what looks like an effort on the Fed’s part to walk back market pricing for an October rate hike. Philip Jefferson joined John Williams in suggesting this month’s meeting might be too soon to raise rates again. “[A]ny future adjustments in policy should be determined by carefully examining trends in the data,” Jefferson said at an event in Virginia. “My colleagues and I will need to come to our own judgment, which may take more time.”
Here’s the problem with that sort of thing: Donald Trump’s still out there demanding rate cuts. In a TIME feature piece published Thursday, for example, he said the following of the Fed board and the FOMC’s deliberation process more generally,
I don’t blame Kevin Warsh. It’s become very political. I don’t blame you, Kevin. I think it’s too bad. Not fair. We have a very hostile board, and the board says, ‘We want to hurt Trump.’ They’re not doing this for you. They’re doing this because they have Trump derangement syndrome.
That’s ridiculous, and to the extent anyone on the Fed board does harbor resentment towards Trump, he might remind himself that the enmity stems from his (ongoing) efforts to force Jerome Powell and Lisa Cook from their positions, if necessary by charging them with crimes they probably didn’t commit. That’s the sort of thing that makes people dislike you.
On Wednesday, Trump said he instructed Todd Blanche to comb through a report which cleared Powell of criminal wrongdoing in an absurdist probe aimed at discerning whether his alleged mismanagement of renovations at the Eccles building reached the level of criminality.
“The Inspector General’s Report just came out on Jerome ‘Too Late’ Powell’s ‘renovation’ of the Federal Reserve Headquarters,” Trump said, in a social media post than nearly ran to 500 words. “At a minimum, Powell should be forced to resign,” he went on. “He can’t manage a Building, and he certainly shouldn’t be allowed to manage his High Interest Rate Policy.'”
When Trump says things like that, he makes it immeasurably harder for Warsh to avoid raising rates. Because any hesitation looks like obsequiousness or worse, outright fear. That risk is so glaring that even the most diplomatic of rates strategists are compelled to acknowledge it, however obliquely.
“The risk posed by a more moderate pace of rate hikes is that investors begin to question the Fed’s commitment to fighting inflation in the current environment,” BMO’s Ian Lyngen remarked. “Such concerns help to explain the latest round of cheapening in the long-end of the curve, a read that is confirmed by modestly wider breakevens.”
Although the US long-end can (and surely will) be the recipient of safe haven flows in the event something “snaps,” and while it’s absolutely the case that a market this oversold could rally hard on an abrupt reversal as shorts cover and short-term momentum signals flip, Trump’s inadvertently putting a floor under the very rate(s) he wants so desperately to lower.
“…he might remind himself that the enmity stems from his (ongoing) efforts to force Jerome Powell and Lisa Cook from their positions, if necessary by charging them with crimes they probably didn’t commit.”
Geez H, it’s like you don’t care about TRUMP’s feelings at all!
Trump is still deranged, that’s for sure.
The trader in me says that, as far as I now, he is the president. So traders and investors have to accept that as a given when making trades and/or investments.
As I once told colleagues after the 2016 election, “we have to play the cards we were given, not the ones we wished we had been dealt.” That still applies.
That said, it’s not like the president’s decisions and moves are at all predictable. So how can you play those cards?
Derek, your comment reminded of my brother’s and my favorite card game when we were little kids- War!
From AI: War is a card game that is mostly based on luck, as the outcome relies heavily on the cards drawn rather than skill or strategy.
The two-year was down nearly ten basis-points today. My guess is that is where most of the foreign “safe haven” bid was. You can’t jerk the bond market around like this when so many global entities are over-extended on debt and — how should I say this — perhaps disinclined to diligently assess and openly share the true value of the assets on their books in real time.
The very front-end isn’t bid or not bid on haven demand. It trades on Fed expectations. Bull steepener = dovish repricing, hence October Fed hike odds in STIRs now ~1/4 versus ~3/4 at recent hawkish extremes.
Thanks!
Gold floating, giant fiscal deficits, building then destroying thousands of billion dollar weapons, climbing inflation, an almost impeachable President, and the U.S. losing a war… WHO WANTS TO OWN A 5.3% LONG BOND?
Sounds like 1980 not 2002 is the better comparison..
“You know, inflation, certain levels of inflation will also pay off that debt very rapidly. Very rapidly.”
https://www.msn.com/en-us/news/other/trump-just-soft-launched-higher-inflation-as-the-new-solution-for-rebalancing-the-40-trillion-us-national-debt/ar-AA2dpocG?ocid=socialshare
“Look at the crime numbers. We have the best crime numbers we’ve ever had in history. But you think of a situation if you had more crime. Not a lot more, but right now we basically have no crime. So you have a little more crime and then you don’t have the shopping. You’re going to go to the store to buy your apples — whatever it is — if you’re going to be stabbed by a black? I heard the other day, someone said, they said a woman — beautiful woman, she was 20 years old — went to the store and got stabbed by a black. Right there in line where you buy the — she was buying milk, they said. And I said — I told my people — ‘Who is this woman?’ But you know, Biden — they let in these criminals, ok? Vicious animals, and they stab– they do the stabbing when you’re in line at the grocery mart. At the grocery store. When you buy your milk or your whatever. So you say Kevin Warsh. He has a hostile board. A board that hates Trump. I say they want to ‘get Trump.’ And one of the things they say is they say ‘inflation’s so high because you have all these people and they’re buying the milk’ — they’re buying too much milk, and then they want to raise the rates because of that. So I said maybe we have some crime, and then the people don’t buy the milk. But just so you understand: We have numbers — the prices are down, ok?”
I read this entirely in his voice, and it’s just so… believable. I must pile on.
“Maybe you don’t need to buy your kids three milks. Do kids really need more than one milk? I only drank one milk, and look at me. Grew up to be President. Obama drank lots of milk. That’s what they tell me. He drank three milks. Dialy. With cookies. Milkman Obama they called him. Barack Hussein. I have tremendous respect for him. But he was weak, you know? So you don’t–how many milks do you really need? It can cause birth defects. Kennedy was telling me that. Very smart man. Actually drinks a lot of milk, but that’s okay. You can drink a lot of milk when you’re strong like Kennedy. Brain food they call it. Where are my pants? No, I–I know I’m wearing–I mean my back-up pants. I’ve soiled these. Where’s Natalie? Natalie always has the pants when I need them. Natalie, you have the–okay good. And be sure to wipe this time, I’ve been itching all week for chrissakes.”
“He drank three milks. Dialy. With cookies. Milkman Obama they called him. ”
I got this far before I cracked-up and realized it wasn’t an actual quote. I too read both H’s quote and yours in Trump’s voice. Funny stuff.
I’m only just now getting around to reading the actual interview, and it is every bit as wild as the parodies. Here’s a direct excerpt (and I want to reiterate that this is an exact quote, not satire):
**Why should Americans believe that you respect the free press when you’re restricting access to the White House to some of our colleagues? **
Because I do respect the free press, but I don’t respect fake news. I’ll give you an example. CNN and MSDNC, which is MS Now—they changed the name because it does so poorly. But I won the election. I won it handily by massive numbers. I won the popular vote. I won all seven swing states. They said if you won three swing states, I won all seven. I won the counties. It’s very important, 86% popular vote. Everything, and very conclusively, I haven’t had a good story on CNN for years. They’re incapable of being—they’re fake news. Same thing on MS NOW.
If I do the finest thing, if I found the cure to cancer, they would say, “Why didn’t he move quicker?” They are just horrible people, and they’re so bad. So I believe in a free press. I believe in an honest press, but I don’t believe in fake news. And I know it’s fake because I know the thing—I don’t mind, you know, if I do something wrong, I don’t mind having a bad story. He’s written a couple of times about something. I said, well listen, he’s not wrong. But with the press, if somebody’s going to call me, if every single story is—look, I’ve done a lot of good stuff. I’m in the Oval Office. I mean, the public is very smart. If I wasn’t doing a good job, I wouldn’t have won that election by a lot.
…
It just goes on and on like that. Natalie even gets a shout-out in the (real) interview. Seriously, read the interview. There’s twenty quotes from it I want to share, they’re all just pure gold, and they’re nearly indistinguishable from satire.
Trump has reached post-parody, which is really a remarkable accomplishment for anyone, let alone a two and possibly three-term US president.
It’s long past the point where satirical content alone were enough because it has proven impossible to one-up the combinations of his many obsessions and grudges, imaginary thinking, limitless lies and self-confidence, and flat out foolishness. Merely satirizing the latest dum(b) development is proving to be a hat on a hat.
It’s why every visual media personality and comedian simply must also have a workable impression of his cadence and mannerisms, and shouldn’t skimp on the hair(s), make up and wardrobe. Without all that, they just sound like pure crackpots that you would ordinarily ignore or tell to shut up. We’ ve reached the point where “it’s no longer funny because it’s true.”
I recall reading about a legislator in Begium or Holland advocating for policies to encourage smoking. To reduce the number of pensioners as a cost-cutting measure.
TDS (a.k.a. Trump Derangement Syndrome) – def. People are deranged if they do not worship Donnie Trump.