Tough month for bank stocks. Not a surprise when 3 month T-Bills yield 5%. How many depository institutions can compete at that rate level? Will the Fed blink? If JPM and GS shares crater - Yes. Otherwise, probably not. Also, as we wrote last night, SIVB may have a new owner come Monday. Source: https://g.co/finance/BANK:INDEXNASDAQ?window=1M … Continue reading Tough Month For Banks
Tag: Treasury yields
10-Year Treasury Yield Has Upside
The 3.95% yield on the 10-Year Treasury is too low. The 10-Year Treasury yield assumes we are going back to a 0.00%-1.00% Fed Funds rate. We are not. We have far too much public debt ($31.5 Trillion) to encourage the type of debt issuance we experienced during COVID when the fiscal and monetary sides lost … Continue reading 10-Year Treasury Yield Has Upside
The Market Does Not Get It
January Headline CPI increased at an accelerated rate (0.5%) and Core CPI increased by the same month-to-month rate (0.4%) as December's increase. Food prices increased at an accelerated rate (0.5%) and Energy prices increased (2.0%) after having declined for the two previous months. Inflation is proving to be sticky (as we predicted in April 2021). … Continue reading The Market Does Not Get It
Tomorrow’s CPI = Noise
Regardless of where CPI lands tomorrow, my view is that the Fed will hold rates higher for longer than the market believes. Higher interest rates combined with a shrinking money supply (QT), translates to: tighter monetary conditions, a higher cost of capital, less revenue visibility for companies, more employee layoffs and a deeper recession. The … Continue reading Tomorrow’s CPI = Noise
The Fed’s Balance Sheet Reduction (QT) Update
The Fed reduced its Treasury and Government Agency security holdings by $32.9 billion over the week ended November 30th. The Fed has reduced its balance sheet holdings by $79.7 billion over the last 4 weeks. Fed Balance Sheet – Treasuries: The Fed’s Treasury security holdings were $19.6 billion lower over the last week and $60.0 … Continue reading The Fed’s Balance Sheet Reduction (QT) Update
How To Crash The Economy
The simple formula for crashing the economy is to shrink the monetary base (cash in circulation plus reserves) while raising interest rates. The chart below plots the monetary base (down 15% year-over-year) against the 10-year Treasury yield (up from 1.56% to 3.98% over the past year). Source: https://fred.stlouisfed.org/graph/?g=Vpb0 We are all but guaranteed a deep … Continue reading How To Crash The Economy
QT Explains Treasury Yield Movements
Why did Treasury Yields spike across the Yield curve from October 12th - October 20th? Look no further than the Fed's Balance Sheet. The Fed allowed $17.9 billion of Treasury Bills, Notes and Bonds to mature the week ended October 19th. Recall the Fed has dramatically shifted its strategy as it has transitioned from the … Continue reading QT Explains Treasury Yield Movements
The Looming Treasury Debt Bomb
Why Treasury Secretary Janet Yellen issued short and intermediate-term Treasury securities (Bills and Notes) rather than Bonds when the Fed Funds Rate was at zero percent we will never know. We are now paying the price as the Public Debt rolls over at higher rates. See table below. Treasury Bills: T-Bills can have a maturity … Continue reading The Looming Treasury Debt Bomb
Yields Will March Higher
The Fed will continue to hike interest rates for the foreseeable future. Macroeconomic and geopolitical risks are increasing. Therefore, yields can only move in one direction (Up), but this story won't have a happy ending like the Pixar movie of the same name. That is good news for high yield investors, good news for savers … Continue reading Yields Will March Higher
Is The Treasury Market Really That Illiquid?
Talking heads were out in droves on Thursday speaking about the illiquid Treasury market and how it may soon crack - triggering the need for Fed intervention. Sure, yields are moving around as the Fed tightens. However, this past week's movements in the 2-Year and 10-Year Treasury yields were not any more volatile than in … Continue reading Is The Treasury Market Really That Illiquid?
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