2-year bond yields are cratering. Rarely – if ever – have we seen them fall 150 basis points in just three weeks. This signals the bond market sees aggressively rate cuts from the Fed this year. But what would cause this? A recession? Some kind of credit crisis? I can tell you it won’t be because inflation is back to the Fed’s target of 2%. What’s more, the yield curve has steepened sharply. This isn’t good… and if history is any guide… a recession is likely within 12 months.
"Macro / Economy"
Idiosyncratic or Systemic?
Do you believe the current banking ‘crisis’ is idiosyncratic or systemic? The short answer is it’s still far too early to know. Hopefully it’s more of the former and less the latter. Because if it’s the latter, that’s a problem. Last week’s issues will become multiplicative (vs additive). 2008 was a global systemic banking crisis…. this is not 2008. At least not yet…
Markets Suffer Worst Week for 2023
Markets are in a state of panic. A small regional bank – Silicon Valley Bank – suffered a bank run this week. Over $42B was withdrawn in the space of just two days. What happened? On the surface it looks like very poor risk management – where SVB was effectively forced to sell long-term bonds which were underwater. Call it a margin call. Their interest rate risk was not adequately hedged. More details will come out in the coming days… however this sell off is taking the entire sector down with it. Is it warranted?
Soft Landing Hopes
Markets have been largely range trading for 17 consecutive weeks. For example, the S&P 500 appears caught between 3800 and 4200. And I think it’s easy to explain: there are valid cases for both the bullish and bearish case. Equally however, there is also no compelling argument to suggest markets are set to explode higher or crash. This market requires patience. What’s more, you cannot afford to be too aggressive betting on either outcome.
For a full list of posts from 2017…