This chart illustrates another factor contributing to the increase in US bond yields:
Concerns about the govt's ability to manage its debt responsibly. The price of insuring against the possibility of the US government defaulting on its obligations (CDS Price) has recently jumped Source: HolgerZ, Bloomberg
10-Year Bond Yields
USA 5.00% Greece 4.36% Source: Bloomberg, Lawrence McDonald
Amazing chart by CrossBorderCapital
Treasuries out, gold in?
Fed Chair Jay Powell on why longer-term yields are moving higher: “It’s not apparently about expectations of higher inflation
And it’s also not mainly about shorter term policy moves.” He probably has a point as #realyields are surging toward 2.5%, the highest since 2008. So what else can explain the surge in bond yields? Hints: 1) 1. A resilient economy — Q3 REAL GDP growth is expected to be around 3% annualized, well above trend growth of 1.5% to 2%, driven in large part by a resilient labor market and a strong consumer 2) Supply/demand imbalances — Given the growing U.S. fiscal deficit, the Treasury Department has been increasing its auction sizes for U.S. Treasury bills and notes. This year, the total amount of Treasuries issued in auctions is expected to climb to over $3 trillion, higher than at any year over the past decade (excluding 2020). This figure is expected to increase next year. Meanwhile, some of the natural demand for these bonds has moderated: The Fed is undertaking QT (reducing its holding of Treasuries by about $650 billion over the last year) and some foreign buyers, such as China, have slowly been reducing their holdings of U.S. Treasuries as well. Source: Lisa Ambramowitz, Bloomberg, Edward Jones
US yield curve keeps bear-steepening w/2s/10y spread jumps to -19bps after Fed's Powell has given 'green light' for higher long-term bond yields with the 10-year near 5%
Source: Bloomberg, HolgerZ
China has cut its holdings in US Treasuries to $805bn, the lowest level since 2009
Beijing has been selling $502bn in Treasuries in the past decade, & pace of Chinese selling has been accelerated recently. Source: Bloomberg, HolgerZ
The iShares 20+ year Treasury Bond ETF (TLT) now down 51% from All-Time-High
Source: Bloomberg, HolgerZ
Locking in 2.5% real yields which is 0.5% above the economy's potential growth rates, with inflation optionality icing on top, is once in a decade valuation opportunity
-> According to Steve Donzé (Pictet Asset Management). He has a point...
