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

Let's discuss 5 factors spooking the bond market.
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US Treasury Yields 2021-10-08

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

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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!

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