Note to reader: As I have been saying for a long time now, I estimate the neutral Fed funds rate to be exactly what it is right now, 4.25%. There is a growing consensus that the FED may be done cutting overnight rates, since the employment and GDP data continue to remain robust, while the elevated inflation growth remains sticky.
I also note that the blame for these higher worldwide bond yields are being pinned on the incoming Trump regime. Although this is not justified, this all points to the higher costs of money and only those who have positioned themselves to benefit from higher inflation (e.g. underlevered landlords that can generate higher rent rolls and publicly traded firms and other businesses with inelastic demand) should actually benefit.
This blog has been noting the upward shift in the longer end of the yield curve, since the FED began cutting rates as an important dynamic to watch. However, it has not yet translated into lower stock prices. Since I have estimated that the neutral Fed funds rate was higher than others on the street estimated, I suspect stock prices will eventually adjust to a 10-year Treasury yield of 5.0 to 5.5%.
I suspect that real sovereign bond yields continue to grind higher, because there is a growing loss of confidence in the nation-state governments to control their ballooning fiscal deficits as well as the inability of the central banks to facilitate this outcome without generating higher trend inflation. In a world of global quantitative easing, these circumstances are without precedent.
If what I think will happen during Trump’s presidency does happen and the 10-year Treasury yield crosses 6%, circumstances in the asset markets could change quite markedly. It’s still not too late for investors to lock in 7% mortgages. I just raised the rents for several of my longer-term tenants by at least 5%. The world will adjust.
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The Surging Cost of Money
From Bloomberg:
If strategists at Bank of America are correct, the US bond market is now in the sixth year of the third great bear market since 1790.
Few investors would beg to differ after a week in which US Treasury yields soared, propelling the rate on the 10-year note to the brink of the 5% barrier rarely seen since the financial crisis of 2008.
Other nations are experiencing a similar exodus from debt. The yield on 30-year UK gilts last week touched the highest since 1998, forcing the new Labour government to start seeking money-saving measures, and UK assets are weak again today.
The message from many in markets, and Bloomberg’s latest Big Take, is to get used to it: The price of money will be permanently higher as risks to the supposedly safest of assets mount.
Friday’s blowout jobs report shows the economy continues to power ahead, leaving Bank of America among those on Wall Street now betting the Federal Reserve won’t cut interest rates in 2025. Goldman sees two reductions, down from three previously.
With data this week set to show inflation is staying sticky (see our week ahead below), central bankers are already signaling they’re on hold.
And we are now a week away from the second Trump presidency which lands with promises of lower taxes and higher tariffs. That’s a recipe, in the opinion of many, for faster inflation and greater debt. A fight also looms over lifting the federal debt limit.
Put it all together and it’s no wonder the so-called term premium on 10-year notes — the extra yield investors demand to accept the risk of taking on longer-term debt — is now at a decade high.
The result is BlackRock, T. Rowe Price and Bianco Research are among those penciling in 5% as a reasonable target for yields amid expectations investors will demand juicier rates to keep buying longer-dated Treasuries.
That has implications for other markets, with historians noting the multiple times that higher borrowing costs have accompanied market and economic meltdowns.
Stock investors are already nervous the higher yields could bring an end to the tech-led bull run. The spillover in stocks was already apparent Friday as the S&P 500 fell 1.5%.
“There is a tantrum-esque type of environment here and it’s global,” said Gregory Peters, who helps oversee about $800 billion as co-chief investment officer at PGIM Fixed Income.
Euro to Fall to Parity If US Yields Hit 5%, State Street Says
(Bloomberg) — Rising bond yields in the US will heap more pressure on the euro, triggering a drop to parity with the dollar, according to State Street Global Advisors.
The dollar’s surge to a more-than two year high has taken place in lockstep with the rise in the 10-year Treasury yield, which is now likely to reach 5% from around 4.8% on Tuesday, according to Aaron Hurd, a portfolio manager at State Street Global Advisors. Although Hurd is a long-term dollar bear, he correctly forecast the recent jump in the US currency, opening a tactically long position in the fourth quarter of last year.
“Euro/dollar could break parity and maybe go a little below” if the Treasury yield reaches 5%, Hurd said. He added that a further drop toward 0.95 in the euro would require a fresh driver, including further clarity on the outlook for US tariffs.
Hurd’s forecast chimes with a growing number of calls for the 10-year yield to rise to 5% and the euro to reach parity with the dollar as incoming US President Donald Trump’s tariff proposals keep the Federal Reserve cautious about further interest rate cuts.
Market consensus is still for the euro to stay above $1.03 throughout 2025 and only two out of 52 analysts surveyed by Bloomberg see US yields reaching 5% by the end of the year.
Still, moves in the options market point to a growing possibility that the 10-year yield could hit 5%. The last time the 10-year yield traded above 5% for a sustained period was in 2007, in the lead-up to the global financial crisis.
Note the last paragraph in the article!
Treasuries immediately rallied after the release of these cool PPI numbers, but have since fallen back. Bond yields are almost unchanged on the day. Despite dovish headline inflation data, bonds are still creaking under the weight of the growing loss of investor confidence.
Core PPI (MoM) (Dec)
Act: 0.0% Cons: 0.3% Prev: 0.2%
Core PPI (YoY) (Dec)
Act: 3.5% Cons: 3.8% Prev: 3.5%
PPI (YoY) (Dec)
Act: 3.3% Cons: 3.5% Prev: 3.0%
PPI (MoM) (Dec)
Act: 0.2% Cons: 0.4% Prev: 0.4%
PPI ex. Food/Energy/Transport (YoY) (Dec)
Act: 3.3% Cons: Prev: 3.5%
PPI ex. Food/Energy/Transport (MoM) (Dec)
Act: 0.1% Cons: 0.3% Prev: 0.1%
Newsom comparing notes with his counterpart in Hawaii.
https://x.com/TaraBull808/status/1878682435044712768
Interesting body language there. He’s a bit vague about the “myriad of issues” he’s dealing with, but it’s something to do with “land use concerns… around speculators coming in, buying up properties and the like”.
What is he talking about exactly? Anyone know?
Smart cities! His counterpart is a one of those! His body language is saying, I know something you don’t know!
Here is a link on Smart LA 2028. https://ita.lacity.gov/sites/g/files/wph1626/files/2021-05/SmartLA2028%20-%20Smart%20City%20Strategy.pdf
Just a coincidence right?
It’s worth reviewing the Dr. Day predictions again.
This part has relevance to this site:
PRIVATELY OWNED HOMES — “A THING OF PAST”
Privately owned housing would become a thing of the past. The cost of housing and financing housing would gradually be made so high that most people couldn’t afford it. People who already owned their houses would be allowed to keep them but as years go by it would be more and more difficult for young people to buy a house. Young people would more and more become renters, particularly in apartments or condominiums.
More and more unsold houses would stand vacant. People just couldn’t buy them. But the cost of housing would not come down.
You’d right away think, well the vacant house, the price would come down, the people would buy it. But there was some statement to the effect that the price would be held high even though there were many available so that free market places would not operate. People would not be able to buy these and gradually more and more of the population would be forced into small apartments… small apartments which would not accommodate very many children. Then as the number of real home-owners diminished they would become a minority.
https://archive.org/details/dunegan-lawrence-the-new-order-of-the-barbarians_202403/page/n9/mode/2up
A very interesting read. Thanks for the link. As we can see, there is still more to accomplish, but the final products are within their grasp. I say these elites are about 30 years behind from what the speaker enumerated.
As an older man, I don’t see the drastic changes already made. The younger people have already been groomed and are well acclimated to their desired fate. Their false reality is all they know. As more people like me die off, the final touches are easier to achieve.
The original speech was from 1969, and he said some things would take longer.
He also said it was already unstoppable even by then.
I notice around where I live, developers will buy a house and section for 1.5 million, and remove the house. They will then put 8 units on the section and sell them for at least 600k each. The units are tiny. The sections are not even 1/4 acre. So we have steadily increasing supply here, but they are getting smaller.
The effect is starting in Australia and NZ a little bit. Chinese buyers will buy 50 houses at once without seeing them, and leave them empty. It’s just an investment for them and leaving them empty increases demand. They pay cash and don’t care about rent. They just want to get the money out of China, away from the CCP. It’s their backup plan in case they upset the CCP and need to leave. The NZ govt accommodates them in this. In fact there was a scandal where a NZ politician was bribed for $20,000 for some deal.
The Chinese thought it was hilarious – normally it costs millions to bribe a politician (and they don’t mind paying) but in NZ it’s so cheap it’s embarrassing.
Thanks for the link. I was just reading about the Oneida Community and other eugenic Socialist Utopia experiments. Those seemed to fall apart when passing to the next generation, or the sociopathic leader ended up with a statutory rape charge. At some level they seemed to believe they could pass on their level of consciousness via selective breeding. I get the impression that the blood oath is required to get to their utopia.
Satan hates marriage and children because procreation is a gift to humanity from God the Father. Satan being an angel does not have the ability to procreate and does his worst to destroy this gift through his agents who I am sure have taken a blood oath. Even Cain took a wife and had a son, very human.
Remember, everything in the MSM is a lie. I mean everything. The synagogue and Freemasons do not want us knowing the truth about what’s on the other side after the silver cord is cut. There’s going to be a lot of disappointed people.
Ecclesiastes 12 KJV……
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Man who died for three minutes ‘saw what hell is like’ and one thing surprised him
Excerpt;
Taking to Reddit, the friend said: “He remembers the stroke, and being wheeled to the ambulance on a stretcher. Then he felt like he was floating under ice cold water, and it was dark, but he wasn’t really thinking or feeling anything emotionally, just existing and knowing it was very, very cold and he couldn’t see.
https://www.mirror.co.uk/news/weird-news/man-who-died-three-minutes-34467053.amp
That description sounds a lot like where the fallen angels are bound till the end!
What action…he’s a do nothing stooge!
Goldman Says Drop in Funding Spread Signals Brisk Equity Selling
(Bloomberg) — This year’s sharp decline in funding spread suggests that institutional investors’ positioning in equities is shifting as markets rethink the Federal Reserve’s interest-rate path, according to strategists at Goldman Sachs Group Inc.
The funding spread — a measure of demand for long exposure through equity derivatives such as swaps, options and futures — has tumbled to around 70 basis points from about 130 basis points in late December, they said.
“In our experience, large short-term moves in funding almost always mean that there has been a change in demand trends from professional investors,” the team led by Head of Derivatives Research John Marshall wrote in a note to clients. “We believe that pension funds, asset managers, hedge funds and CTAs have all been net sellers over the past few weeks.”
https://finance.yahoo.com/news/goldman-says-drop-funding-spread-113804244.html
So, naturally one of the goals is to blow up the U.S. dollar and as a result, the rest of the currencies. They will be calling Trump the second Herbert Hoover soon enough!
Agreed. I think the SoS is setting up Trump and all Republicans for a fall just like Herbert Hoover.
It will be interesting to see if Trump will act like Herbert Hoover and do nothing or take action to counteract the economic contraction.
That 10 year UST chart looks like it may overcome 5% soon.