A tricky time for US government bonds...
US Treasuries are facing multiple headwinds - economic strength (Atlanta Fed's real-time GDP growth forecast is tracking close to 4% for the third quarter), an uptick in energy prices and FED QT. But another headwind is fading demand stemming from historical buyers of US Treasuries: 1- China US Treasury holdings just hit a 14-year low at less than $850bn 2- Saudi Arabia’s stockpile of US Treasuries fell to the lowest level in more than six year (less than $100B) 3 - As Japanese long-term yields rose (due to a tweak in their #monetarypolicy), the largest foreign holders of US Treasuries, Japanese investors, became less interested in US bonds and asked for a premium. Source cartoon: GISreportonline
As highlighted by Caleb Franzen, the relative chart of SP500 / M2 money supply is trading at the exact same level as July 2007
This range also coincided with market peaks in: • Feb.'20 • Q4'21 While the S&P 500 itself has gained +181% in the past 16 years, $SPX/M2 has made no progress. Should this be seen as a logical resistance zone?
10-Year Treasury Yield is now 4.28%, the highest level since October 2007
From a total return perspective, the 10-Year Treasury Bond is now down 1% in 2023, on pace for its third consecutive negative year. With data going back to 1928, that's never happened before. Source: Charlie Bilello
After adjusting for inflation, US retail sales fell 1.3% over the last year, the 9th consecutive YoY decline
That's the longest down streak since 2009. Nominal retail sales increased 2% YoY vs. a historical average of 4.7%. Source: Charlie Bilello
US stock market current mood in one picture
Source: Heisenberg - Mr_Derivatives
From T.I.N.A (There Is No Alternatives to Risk assets) to T.A.R.A (There Are Reasonable Alternatives)... 6-months US T-bills yield 94bps more than the S&P's earnings yield...
Source: Bloomberg
Comparable countries bounced post-COVID, but US did not
~1 million Americans have died of OD’s just since 2010; that’s more than the # of Americans that died in all wars America has ever fought in. Source: The Economist Via Dan R Dimicco thru Luke Gromen
US average mortgage rates just surged above 7.5% for the first time in 23 years
There are some reasons why US house prices haven’t crashed: 1. Buyers can’t afford the rates; 2. Sellers would be insane to sell a home with a significantly lower rate to buy another at 7.5%. Market is frozen. The economy is currently experiencing a significant tightening of financial conditions, largely driven by the persisting fragility in the Treasury market. The bill will come due at some point. Source: Crescat Capital, The Wolf of All Streets
