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Bond Yield

Oct 07 2021

That Money Tsunami Is Now Just A Flood

  • Oct 7, 2021

Compare the U.S. monetary response in early 2020 to China’s: The Fed quadrupled the M2 growth rate (from 6% to 24%) in three months, while China merely bumped M2 growth from 8% to 11%. This relative policy restraint leaves China in a better position to handle potential fallout than if it had gone “all in” like the U.S.  

Aug 06 2021

Smarter Than The Bond Market?

  • Aug 6, 2021

The half-percentage-point drop in the 10-year Treasury yield, since mid-March, has investors worried about “what the bond market might know” that the stock market doesn’t. Maybe it’s time to stop lionizing the bond market’s prescience and give the stock market its due.

Jun 10 2021

Stock/Bond Disconnect?

  • Jun 10, 2021

In the May Green Book, and again in the May 21st issue of “Chart of the Week,” we discussed the trailing one-year correlation between weekly percentage changes in the S&P 500 and the 10-year Treasury bond yield. Rollovers from high levels in this correlation have signaled most of the important pullbacks in the bond market over the last 20 years.

Jun 05 2021

Inflation: Nothing To Fear But The “Lack Of Fear”

  • Jun 5, 2021

The refusal of the bond market to acknowledge the worsening inflation readings seems to have strengthened the consensus view that any inflation trouble will be “transitory.” Do bonds still know best when there’s a systematic, price-insensitive buyer hoovering up $120 billion of them per month? 

May 28 2021

Real Yields: Interesting, But Not So Helpful

  • May 28, 2021

After Consumer Price Inflation spiked to a 12 1/2-year high of 4.2% in April, there’s been a torrent of analysis decrying the collapse of “real yields”—including the real Treasury-bond yield, real S&P 500 dividend yield, and even the real S&P 500 earnings yield. Since all of these yields already traded at extremely low nominal levels, the inflation adjustment makes every one of them look even worse. For example, the real yield on 10-year Treasuries just sunk to -2.60%, the lowest reading since 1980 (Chart 1).

May 21 2021

What The Two-Month Stall In Bond Yields Tells Us

  • May 21, 2021

The 10-year Treasury yield has absorbed the past two months’ worsening inflation numbers by going exactly “nowhere.” Bond investors seem to be all-in on the Fed thesis that the inflation pickup is just transitory.

During the recent consolidation, however, the Treasury yield showed a subtle change in character—one that suggests there might be more inflation paranoia than meets the eye. The 10-year yield’s daily correlation with stock price movements flipped negative, and then plummeted toward a 21-year low. 

May 07 2021

Two More Reasons For Yields To Rise

  • May 7, 2021

Bond yields have paused in the last several weeks, but we think it’s likely to be a pause that “refreshes.” Many bond indicators, including the Copper/Gold ratio popularized by Jeffrey Gundlach, suggest yields should be moving dramatically higher in the months ahead.

Mar 12 2021

Stocks And Yields Revisited

  • Mar 12, 2021

The S&P 500 and 10-Year Treasury bond yield could accomplish something fairly rare today by closing at “joint” 52-week highs. The relevant levels to meet or exceed are 3934.83 on the S&P 500 and 1.49% on the bond yield.

Mar 05 2021

Bond Yields “Take Down” An Old Favorite

  • Mar 5, 2021

The “lower for longer” interest-rate thesis propped up the S&P 500 Low Volatility Index for more than a decade. Rising bond yields have since helped drive this former darling to an 18-year relative-strength low. Yet, assets in the S&P Low Volatility ETF are still five-times larger than its High-Beta counterpart.

Feb 05 2021

Stocks In The Face Of Rising Yields

  • Feb 5, 2021

With yields on the 10-Yr. Treasury finally breaking above 1.00% last month, the consensus has quickly evolved to the view that stocks and yields can continue to rise alongside one another for a while. Small Caps have shown a decisive performance edge during the recent episodes.

Feb 05 2021

Minding The “Middle”

  • Feb 5, 2021

When investors ponder the level of yields that might pose a problem for stocks, it’s invariably the U.S. 10-Yr. Treasury bond that’s referenced. That’s fine, but the middle part of the Treasury curve has had just as strong a relationship with stocks, historically, as have longer-dated bonds.

Jan 15 2021

Rising Rates And Rising Stock Prices?

  • Jan 15, 2021

Often, what market pundits like to pass off as bold, contrarian forecasts are merely rationalizations and extrapolations of trends that have already been in place for some time.

Jan 08 2021

Heating Up Quickly

  • Jan 8, 2021

Inflation surprises have run hotter in the U.S. than in the rest of the world, no doubt reflecting the strength of major currencies versus the U.S. dollar. 

Dec 11 2020

Bond Yields: Cyclical Pressures Vs. Positioning

  • Dec 11, 2020

Even after watershed events COVID-19 and MMT, some things never change.

Next year will begin like almost every one of the past dozen years, with economists and strategists expecting bond yields to rise.

Unlike most of those years, though, there are several measures of “cyclical pressures” that would seem to give them a good chance of being right. The best-known among these might be the “Copper/Gold Ratio,” popularized by DoubleLine’s Jeffrey Gundlach, which suggests 10-Yr. Treasury yields should be around double their current level (Chart 1).

Dec 05 2020

High Tide?

  • Dec 5, 2020

For almost nine months, an historic Fed liquidity flood has washed away any economic, valuation, technical, or “sentimental” stock market challenges. Nonetheless, each economic disappointment brings hope this flood will intensify. Those hopes aren’t irrational, because when it comes to any measure of liquidity, rate of change is more important than level.

Oct 07 2020

Five Reasons To Expect Higher Yields

  • Oct 7, 2020

Much of what we think “we know” about the bond market says yields should be headed higher.

Oct 07 2020

Remember The Yield Curve?

  • Oct 7, 2020

It would be a mistake to ignore (as most pundits will) this important forecasting tool until the next time it threatens to invert. The level and direction of the yield curve provide helpful information throughout the entire economic cycle.

Oct 07 2020

Inflation In The Wrong Places?

  • Oct 7, 2020

Long before policymakers’ extreme response to the COVID collapse, we feared that the Fed’s interventions were suppressing important signals from the stock and bond markets. But we now suspect that hyper-expansionary policies are suppressing price signals from the “real” economy as well.

Jun 19 2020

It’s Demographics, Stupid! (Not The Economy.)

  • Jun 19, 2020

Turn on financial television at any random time, and you’re likely to soon hear the argument that still-high U.S. stock market valuations are “justified” by extremely-low interest rates. We’ve countered that these low U.S. rates are simply a reflection of the secular slowdown in economic and earnings growth.

Apr 07 2020

A Cross-Asset Dash For Cash

  • Apr 7, 2020

March’s mad dash for cash didn’t stop with rates/credit/FX markets. Among equities, there was also a strong preference for cash liquidity. The market rewarded companies that had strong cash positions and punished those without—which explains why traditionally defensive styles actually underperformed.

Oct 25 2019

Low Rates Don’t Justify Higher P/E Ratios (And U.S. Investors Should Be Glad)

  • Oct 25, 2019

The fear (or hope) that U.S. bond yields would fall to zero or below subsided over the last month. However, the belief that low yields merit significantly above-average P/E ratios remains stronger than ever.

 

Jul 05 2019

Correlations Are Worthless, Except This One

  • Jul 5, 2019

We’ve never understood investment quants’ desire to project correlations among assets. Such correlations are inherently unstable.

Jun 28 2019

Limbo Rock!

  • Jun 28, 2019

As global rates have taken a precipitous dive the last few months, it’s been hard not to hum “Limbo Rock.” And just like Chubby Checker, we’ve been asking our screens “How low can you go?” on a daily basis.

Jun 07 2019

Take A Closer Look At “Goldilocks”

  • Jun 7, 2019

We’ve frequently written of the uncanny parallels between the rallies of 2018-19 and 1998-99, but hope that newer readers don’t mistake this analysis as a forecast.

May 07 2019

Where Are Yields Headed? Look In The Mirror!

  • May 7, 2019

Many economists believe U.S. economic growth will reaccelerate in the second half, sending 10-year Treasury bond yields back above 3% late in the year. A forecasting technique with an excellent record, however, suggests the return to 3% won’t occur until late next decade!

Feb 07 2019

What Are Bonds Telling Us?

  • Feb 7, 2019

Corporate bonds aren’t the only asset reluctant to embrace the stock market’s latest “all clear” verdict on the 2019 economy.

Feb 07 2019

Credit Conundrum

  • Feb 7, 2019

The stock market seems to have concluded that a recession will be averted in 2019, but evidence from other asset markets is less convincing.

Jan 08 2019

The Market Is Off Its Meds!

  • Jan 8, 2019

While investors obsess over the market level at which a hypothetical “Powell Put” might come into play (or whether such a put even exists), they seem to have overlooked the absence of another such put that proved dependable throughout the cyclical bull market.

Dec 28 2018

3% Yields Proved To Be High Enough

  • Dec 28, 2018

In September the popular claim was that “interest rates were rising for the right reasons,” and still too low to threaten stocks or U.S. economic expansion.

Dec 07 2018

Bond Yield Proxy—A Tool For Equity Investors

  • Dec 7, 2018

We created an equity basket that can track the movement of the U.S. 10-year yield. Overall, it does a good job of capturing the major moves.

Nov 12 2018

Rates Hurting Households

  • Nov 12, 2018

Doubling of yields since 2016 has slammed households. Percentage increase in rates is more important than the absolute level.

Nov 07 2018

Bond Investors Get It Right Again!

  • Nov 7, 2018

Having devoted all of our professional lives to the monitoring and modeling of equity markets, we’re naturally ticked off that this year’s best stock market signals have in fact been rendered by bonds.

Nov 07 2018

Measuring The Backup In Bond Yields

  • Nov 7, 2018

A couple of months ago, we (belatedly) observed that, in February the 10-year Treasury yield had bro-ken above its 10-year moving average. That simplistic tool has been a pretty good descriptor of yields’ long-term trend for more than a century, with few “whipsaw” signals along the way.

Nov 07 2018

BAA Acting Baaaadly!

  • Nov 7, 2018

Whether or not they’ve risen for the “right” reasons remains up for debate, but the upward move in interest rates has hit the usual suspects very hard in 2018, like early-cycle industries and Emerging Markets.

Oct 05 2018

Stocks Not Yet Yielding To Yields

  • Oct 5, 2018

Regardless of how it’s measured, the liquidity available for global stocks continues to run off.

Sep 28 2018

New Highs In Stocks Have Some Unwanted Company

  • Sep 28, 2018

In recent commentaries, we’ve highlighted the surprising number of U.S. stocks making 52-week lows on both a daily and weekly basis, a sign that the market’s push higher has become more fractured. While pondering the significance of those lows, however, we missed a new 52-week high last Friday in a series we think will be especially critical to the stock market’s near-term fortunes: the 10-year U.S. Treasury bond yield. Specifically, the yield matched its weekly closing high of 3.07% posted on May 18th.

Sep 14 2018

Another Eulogy For The Bond Bull

  • Sep 14, 2018

In the past year, big-name bond gurus have put forth various yield targets that, if exceeded, would provide definitive proof that the secular bull market in Treasury bonds begun in 1981 had finally ended.

Apr 06 2018

Minding The Middle

  • Apr 6, 2018

As equity investors, we’ll readily admit to an excessive focus on the Federal Funds rate and the 10-year U.S. Treasury yield.

Apr 06 2018

A “Drug-Free” Market Decline?

  • Apr 6, 2018

Yields on 10-year Treasuries are up 10 bps since stocks peaked in January, a clear break from the behavior of prior corrections. The last four stock declines of 10%+ were self-medicating—having been accompanied by bond yield declines of 50 to 150 basis points.

Mar 29 2018

Change In Market Character

  • Mar 29, 2018

The Major Trend Index fell into its negative zone last week and we trimmed the already below-average net equity exposure in tactical accounts by a few more points, to a current 41-42%.