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Bond Yields Dive and Stocks Tank Supposedly on Growth and Covid Fears

Bonds continued a huge rally today with yields at the long end down significantly. What's going on?
Author:
US Treasury Yields Monthly Average 2021-07-19

So much for the idea "It's time again to short bonds as a couple of people Tweeted last week." I replied "Really?"

Today's Bond Market Move

  • 30-Year: Down 12 Basis Points 
  • 10-Year: Down 11 Basis Points
  • 5-Year: Down 9 Basis Points
  • 2-Year: Down 3 Basis Points

Stock Market 

  • Dow: -750 points (2.2%)
  • S&P: -75 points (1.7%)
  • Nasdaq: -183 points (1.3%)

Bond Yields Sink to February Lows as Growth Fears Mount

The  Wall Street Journal reports Bond Yields Sink to February Lows as Growth Fears Mount.

“This feels like a risk-off move on virus concerns. It takes some of the shine off growth over the next couple of quarters,” said Chris Jeffery, head of rates and inflation strategy at Legal & General Investment Management.

The spread of Covid-19 variants is prompting concerns about widespread tightening of restrictions on movement and commerce, investors said. On Monday, the Australian government extended a lockdown in Melbourne and tightened rules for Sydney over the weekend. Infection cases have also recently reached new highs in Indonesia and Vietnam, according to data from Johns Hopkins University.

A survey on consumer confidence from the University of Michigan last week showed that Americans are responding to the rise in prices by avoiding big purchases, expecting cheaper prices in the future.

“This is the opposite of what one would expect if the environment was genuinely inflationary,” said George Saravelos, global head of foreign-exchange research at Deutsche Bank. “It shows the global economy has a very low speed limit and consumers remain very price-sensitive.”

Better Synopsis

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  • Stocks are insanely valued and need no excuse to drop.
  • With inflation fears running rampant nearly everywhere, something else usually happens.
  • Covid is just a made up excuse.

Mercy Me! Inflation Expectations Are No Longer Well Anchored

Inflation expectations are nonsense, but I will credit Saravelos for his second statement "The global economy has a very low speed limit and consumers remain very price-sensitive.”

With three rounds of stimulus spent and Federal benefits running out in September, what are the Fed and Congress going to do for an encore? 

Don't rely on QE as it did nothing loans and leases. Moreover, QE does not get spent as discussed in Will the Fed Balance Sheet Get Spent into Circulation Causing Inflation?

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