Today was an important day in the bond market. The US Treasury auctioned $40B of 10-Year notes. Coming into the auction – I was worried there would not be a decent bid. For example, if we faced further buyer’s strike – these yields were likely to resume their path higher. However, we saw the opposite. The 10-year yield drifted lower. So what does this tell us about future economic growth? Are investors worried? In addition, the price of WTI Crude is also sharply lower… back below US$80/bbl on concerns of weakening demand. Are equities slow to connect the dots – as they are headed in the opposite direction.
"Interest Rates / Bonds"
For Now, A Slowing Economy is Good News
A weaker than expected October payrolls print sent stocks flying and bond yields sharply lower. The S&P 500 finished at 4358 – a whopping 5.9% for the week. It was the market’s best week for the year. Renewed bullish enthusiasm was mostly due to investors betting the Fed is done. And that makes sense. For example, if employment, growth and inflation continue to soften – there’s every possibility the Fed has hit its terminal rate. However there is a caveat. Not only will the Fed need softer economic data – they are hoping the bond market continues to keep financial conditions tight (i.e. bond yields stay high)
Will This Market Rally Continue?
Did we finally hear a ‘less hawkish’ Jay Powell yesterday? For the first time in months the Fed Chair may have slightly lowered his guard. But barely… as Powell is far from being a dove. A dovish Fed is one that is (a) cutting rates; and (b) ending quantitative tightening. Neither of those things are happening soon. But it wasn’t just Powell’s language which fired up the bulls. Janet Yellen also played a role – suggesting the government plans to sell less debt than expected… sending bond yields lower.
4 Ways to Invest in Bonds
If you’ve been following my posts the past few weeks – I’ve suggested it’s a good time to start increasing your exposure to bonds. As part of these missives – I’ve also had many reader emails asking me how? This missive will offer you a guide on some of the simple ways you can increase your exposure to fixed income. But let me offer a caveat… bonds are not risk free (nothing is)
For a full list of posts from 2017…