Search
All
Economics
Politics

Bond Yields Have Been On a Tear Since August 4. What’s Going On?

•

•

18 comments on Bond Yields Have Been On a Tear Since August 4. What’s Going On?

•

August 4th Yields 

  • 30-Year: 1.83%
  • 10-Year: 1.19%
  • 5-year: 0.67
  • 2-Year: 0.17%

October 8th Yields and Change Since August 4

  • 30-Year: 2.16% +33 Basis Points
  • 10-Year: 1.60% +41 Basis Points
  • 5-year: 1.04% +37 Basis Points
  • 2-Year: 0.31% +14 Basis Points

Spring High Yields 

  • 30-Year: 2.45% on March 19
  • 10-Year: 1.74% on March 19
  • 5-year: 0.97 on April 2 
  • 2-Year: 0.19% on April 2

The 2-year yield and the 5-year yield have both taken out the Spring highs. The 30-year is still 29 basis points away while the 10-year is only 14 basis points away.

A breakout above those levels could be significant. 

Five Factors Spooking the Bond Market and Impact

  1. Debt Ceiling Battle: Short Term, Low Impact
  2. Supply Chain Disruptions: Medium Term, Medium Impact
  3. Trade Deficit: Long Term, Low-to-Medium Impact
  4. Biden’s Build Back Better Spending Plans: Long Term, High Impact
  5. Wage Spiral: Long Term, High Impact

Another Month of Weaker Than Expected Job Gains in September

The jobs report was way below expectations today. On the surface, Treasury yields should have dropped. 

However the job details were far from benign as noted in Another Month of Weaker Than Expected Job Gains in September

Wage Spiral

  • Year-over-year average wages rose from $29.50 to $30.85. That’s a gain of 4.58%.
  • Year-over-year, wages for production and supervisory workers rose from $24.79 to $26.15. That’s a gain of 5.49%.
  • Jobs are still 4,970,000 from the February 2020 pre-Covid high.

Associated Details

  1. Staggering 50 Percent of Small Business Owners Cannot Fill Open Jobs
  2. BofA Raises Minimum Wage to $21, Wage Push Inflation Will Kill Small Businesses 
  3. US Trade Deficit Widens to Record Level as Imports Surge

Hello President Biden, AOC, Progressives

Hello President Biden, AOC, and Progressives, are you watching the bond market?

I said early on that if Progressives get their way on spending plans, especially their demands to have 80% clean energy by 2030 it would set off a bout of stagflation.

The rise in bond yields and a slowing economy are now linked. 

Stagflation Light Might Strike as Early as the Third Quarter This Year

Well, lookie here. Bond yields continue to blast higher as wages spike. Real bottom-line growth may be negative in the third quarter. 

Senator Joe Manchin has expressed concerns over inflation and he is correct to do so.

Real Final Sales in the GFDPNow forecast dipped to -1.1% today, down 0.1 percentage points.

Riding inflation coupled with negative growth is the definition of stagflation.

For discussion, please see my October 7 post Stagflation Light Might Strike as Early as the Third Quarter This Year. 

Transitory stagflation? 

If so, to what?

I am not all all convinced this sticks. A short-term stagflation can easily morph into a plain old deflationary recession, especially if there is a big stock market decline.

Thanks for Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen.

Read the ones you like and you can unsubscribe at any time.If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Comments to this post are now closed.

18 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
Treepower
Treepower
4 years ago
You left out inflation expectations.  When you say they don’t matter, you’re partly right.  In terms of Fed models and consumer behaviour, they don’t.  In terms of the bond market, they do.
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
We’ve been in stagflation since around 2017. The TCJA caused more inflation than the Fed wanted. They tried to raise rates back in winter of 2017 but it blew up in their faces when the stock market took a nosedive and they were forced to reverse course. I believe what we are witnessing is the Fed’s ability to control inflation is getting out of control because of all the money that has been created over the last decade. There is a lot of money still looking for return so if we get price deflation in any major way that money will find a home quickly. The Fed is caught between a rock and a hard place in trying to prevent deflation of an asset bubble at the exact time millions of retirees are depending on the stock market along with pension funds. The pension crisis is being prevented at the cost of higher inflation. How long this goes on is anyone’s guess.
0
0
Eddie_T
Eddie_T
4 years ago
“I am not all all convinced this sticks. A short-term stagflation can easily morph into a plain old deflationary recession, especially if there is a big stock market decline.”
Technically, stocks are looking less likely to tank, and my mentors are all talking about a last parabolic move that will take equities higher, with a big correction due to begin in March or April of next year. A real move by the Fed to taper would be bearish and might change the calculus for that, giving us a big correction, sooner.
Gold is very interesting. I read something today that is pretty counterintuitive for me…..and that is that gold needs to drop below the August low to reset the intermediate cycle.  Gold and silver look underpriced to me, and it probably is a decent time to accumulate a little physical metal. If gold can possibly retake the 50 MA and 200 MA though….. then the scenario gets a lot more bullish.
My little energy portfolio is up almost 7% since I bought PSX to start on 9-21. PSX remains the leader with a gain of 28.5%….Realist’s rec FANG , bought on 9-29….is number two on my leaderboard.  The entire portfolio is green except for KRBN and CEQP, both bought within the last couple of days.  I expect KRBN to move differently..I don’t have much of a feel for that market. I just know I need to be in it. I don’t care where it goes in the short run.
I think the daily cycle for crude has a couple of good weeks ahead and then will probably top and give some back. 
Marathon Oil has been in the news as a big mover….and I think the oil breakout favors juniors and frackers and exploration companies temporarily. I am probably going to buy Marathon (MRO). Not to be confused with Marathon Petroleum, which is already in the portfolio. MPC is a mid-stream company.
 
I like the oil stocks because they pay great dividends, they provide an inflation hedge, and they stand to profit from the economics of climate change as they pivot to become more environmentally focused to get access to ESG capital. It doesn’t hurt that they are becoming debt free and have rapidly improving cash flows.  They are the closest thing to an investment in a tangible asset that you can get in the stock market…other than the miners, which are often knee-capped by gold market manips from out of nowhere.
0
0
WarpartySerf
WarpartySerf
4 years ago
So-  when will our jack-boot on the throat Bankers start to pay interest to the “little people” ?
You know …the little people who get .25% from their caring bankers , the ones who charge them 25% on their bank credit cards?
0
0
mrchinup
mrchinup
4 years ago
Green energy is good but limited. We did fine all summer in Utah with our solar on the motorhome but it’s limited for the cities.  Keep voting for nuts and this is what you get. Funny under Trump we had plenty of cheap fuel. Hmm!  The cheapest we paid for diesel last year on the way to Florida was 1.49 in Texas under Trump now it’s double, good job liberals. Do you know what happens when fuel keeps going up? Should get interesting as the crazies wreck America and the world.
0
0
whirlaway
whirlaway
4 years ago
The yield has gone up from 1.28 to 1.60 in less than a month.  And the only thing new during that time is the debt ceiling fight.  Everything else has been around for a while (rising trade deficit – for decades, rising wages, supply chain issues).  And the Biden BBB plan, if anything, has got attenuated a lot during the month.   So, I would say that when there is a resolution of the debt ceiling issue, perhaps by early December, the yield will head back toward 1.3 again.
0
0
jiminy
jiminy
4 years ago
If the stock market sells off the money will go into bonds and yields will drop accordingly.  It will be a long time before yields approach normal levels, although 2% on the ten is possible.
0
0
Anon1970
Anon1970
4 years ago
I would not exactly call bond yields on a tear. The bond market is still being rigged by the Fed to the detriment of low risk investors. 30 year bonds are still yielding less than savings accounts did when inflation was running at much lower levels years ago.  
0
0
anoop
anoop
anoop
4 years ago
Reply to  anoop
i’ve been eyeing treasuries.  if jamie buys, then i’ll buy too.
0
0
Six000mileyear
Six000mileyear
4 years ago
It’s the 60 year interest rate cycle. We’re 40+ years into the cycle. The past 3 cycles were +/-1 year. That’s incredible consistency despite the tremendous advances in technology. The longer rates stay low, the greater the chance of a devastating rate spike (crash) occurs.
0
0
nic9075
nic9075
4 years ago
Reason bond years on a tear
Maybe because the inflation rate is over 5%
Maybe because the unemployment rate fell 0.4 tenths in just one month (2nd time just this year)
Maybe because real wages are rising by 4% as well
Also many people have quit working because they are making more money trading bit coin and stocks
Next the unemployment rate falling by 0. 4% barely was given a mention only that 194,000 jobs were created.. In any other time this would be an absolute stellar jobs report 194,000 jobs and large gain in wages, hours worked and the 0.4% fall in the UE RATE
0
0
ed_retired_actuary
ed_retired_actuary
4 years ago
Would you lend long-term at substantially negative real yields to a borrower which intends to spend nearly 150% of its income (down from more extreme recent levels) and whose idea of belt tightening is to keep its deficit from growing substantially. implying rapidly growing debt  (not to mention large  expanding off balance sheet liabilities) into the indefinite future?  I am not enthusiastic
0
0
Eddie_T
Eddie_T
4 years ago
I still haven’t closed on refis that I locked at 3.375%  in early August….maybe Monday….they wanted to see my 2020 tax return…I’ve never been such blatant foot-dragging for no good reason. I don’t like to be sweating financing when the ten year is rising.
0
0
Tony Bennett
Tony Bennett
4 years ago
“A breakout above those levels could be significant.”
…
Well, the solution to higher yields is even higher yields.
I’m the biggest bond bull there is … and I’m not worried at all.  Higher yields – coupled with MASSIVE debt overhang – will only drive economy that much faster into a recession.  Where yields will plunge.  And plunge they will when “investors” learn – the hard way – not to worry about Return ON Capital, but Return OF Capital.
Recession much closer than most think (outside another several $trillion can kick, but economy at point dosage needs to ever higher to forestall the inevitable loss taking).
0
0
Quark711
Quark711
4 years ago
Reply to  Tony Bennett
I agree a recession is coming, but I think “this time it’s different” (grin). Rates may drop initially, but soon after the lack of liquidity will create fierce competition that will dramatically drive up the cost of money (rates). As usual, it will surprise the “experts”.
0
0
Mish
Mish
4 years ago
Reply to  Tony Bennett
I am not all all convinced this sticks 
A short-term stagflation can easily morph into a plain old deflationary recession
0
0
Scooot
Scooot
4 years ago
Reply to  Tony Bennett
“but Return OF Capital.”
You won’t get all of your capital back, by the time they mature the purchasing power will have decreased significantly. 
0
0

Decorate Your Walls with Mish Fine Art Images

Click each image to view details or purchase in the store.

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.