Wolfstreet Report – Market Mania Galore en de rente
Het Wolfstreet Report van deze week concentreert zich op de stijgende beurskoersen en hoe dat uitpakt voor de rente op langere termijn.
Everyone can see what’s going on: speculative manias everywhere. This includes the most worthless delisted stocks of companies that had no activity for years that suddenly surged several hundred percent in hours, driven by pump-and-dump schemes in the social media, before re-collapsing.
Publicatie 14 maart
And it goes all the way via real estate, junk bonds, the most-shorted stocks, cryptos, and well, sneakers, to the newest thingy, so-called NFTs, or non-fungible tokens, that are now being hyped to high heaven.
But facing these manias are long-term US Treasury bonds and high-grade corporate bonds that have been getting crushed for months – as their yields have surged.
For example, the bond market ETF that tracks US Treasury bonds with maturities of 20 years or more with the ticker TLT – its shares are now down 20% since early August last year. When prices of bonds drop, by definition, their yields rise.
A 20% drop in share price of what is promoted as a conservative investment in US government bonds is a big step down.
The Fed has bolted down short-term interest rates pretty well. They’re near zero and haven’t budged.
But long-term interest rates have been rising for months. The 10-year Treasury yield on Friday rose to 1.63%, the highest in over a year. Since August, the 10-year yield has more than tripled.
And mortgage rates turned around in early January and started to follow the 10-year Treasury yield higher. The average 30-year fixed rate mortgage interest is now nearly 3.3%.
This is happening even as the Fed is still buying about $120 billion a month in Treasury securities and mortgage-backed securities as part of its QE, designed to push down long-term interest rates. And yet, they’re rising.
The Fed has been unanimous in accepting and even welcoming the rise in long-term interest rates as a sign of economic growth and rising expectations of inflation – as long as it remains “orderly,” and doesn’t veer into “disorderly” markets, as Jerome Powell emphasized.
And Secretary of the Treasury Janet Yellen has chimed in, also welcoming rising long-term bond yields as a sign of economic growth and rising inflation expectations.
The Fed sees these manias too. While it cannot admit to seeing them, and while it can never say that it would let the steam out of them, it is letting long-term yields rise because that is a form of tightening, and it will take some steam out of the manias. And letting long-term yields rise is a prelude to tapering its bond purchases, which is a prelude to raising its short-term interest rates.
-/-/-/-/-/- Verder lezen van deze transscriptie kan onder deze link, op Wolfstreet. -/-/-/-/-/-
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Eerdere afleveringen van het Wolfstreet report vindt u hier.