Treasuries are on the verge of going negative for the year. The last time Treasuries sold off this much since the Fed started cutting interest rates was 1995.
Bloomberg writes the Greenspan Fed lowered rates by 75 bps in the first six months of 1995 and yields on the 10-year and 2-year Treasury then rose 100 and 90 bps, respectively, in the following twelve months.
Interest rate swaps are now expecting the Fed to lower rates by 126 bps through September 2025 compared with 195 bps priced in about a month ago.
Yields on the 10-year Treasury have surged to 4.21%, up from a 15-month low of 3.57% on September 17, one day before the Fed lowered borrowing costs by 50 bps.
Several bulge bracket firms are suggesting that a 4.75% or 5% 10-year Treasury is all but a certainty in the next several months for a myriad of reasons.
Bloomberg writes “Global CPI Momentum is Rising for the first time Since 2020,” the result of stronger than expected growth in the US and continued supply chain distortions.
Rhetorically asking, will supply chains ever revert or is this the new normal? As written many times, the last 30 years was the only time countries exported vital industries and production to their adversaries. Price was the only determinate of purchasing decision. Today it is availability and reliability.
The narrative is also rising that US inflation gauges do not accurately reflect pricing pressures. The data states that prices have eased substantially over the last two years, but there is a disconnect between what society is experiencing.
For example, the CPI does not include property taxes, interest charges from credit cards and auto loans to surging homeowners’ insurance. All have increased exponentially since 2020 and are unlikely to recede any time soon.
An inflation premium has been virtually absent on longer term debt. Is this about to change?
Yesterday legendary hedge fund manager Paul Tudor Jones suggested US fiscal policy is on the verge of a Minsky Moment. Stability breeds instability and this instability is about to hit the economy, the result of the complete lack of fiscal discipline. Spending is unsustainable and neither candidate has remotely addressed the issue.
Jones stated, “we are going to be broke really quickly unless we get serious about dealing with our spending issues.”
Rhetorically asking, will a major market narrative on November 6 be the deficit?
Commenting on yesterday’s market activity, equites were flat and Treasuries rebounded nominally from the morning sell off.
Last night the foreign markets were down. London was down 0.46%, Paris down 0.62% and Frankfurt down 0.18%. China was up 0.52%, Japan down 0.80% and Hang Seng up 1.27%.
Futures are down about 0.5%. The 10-year is off 4/32 to yield 4.23%.
