An Interest(ing) Development

An Interest(ing) Development image

The State of the Market

Midway through February, things were looking good as all-time record highs were recorded by the major indices and the YTD gain for the S&P 500 was approaching +5%. But then it happened. On 16-Feb all heck broke loose in the bond market as the yield on the 10-year Treasury Note surged above its recent trading range and embarked on a what can only be described as a joyride to the upside.

Normally, when prices on a chart move up quickly, it's a good thing. However, when the move occurs in bond yields, it's the opposite and many analysts call such a move a "tantrum" - as in the market pitching a hissy fit. In this case, the temper tantrum in rates is being attributed to the combination of more aid/stimulus (which in turn, will create massive increases in the supply of bonds the government will have to sell), economic data that has largely surprised to the upside, and of course, the long-awaited uptick - albeit modest - on the inflation front.

Despite Fed Chair Powell making it abundantly clear during his bi-annual testimony on the state of the economy and monetary policy that the Federal Reserve has no intention whatsoever of raising rates anytime soon, bond traders had other ideas. In the span of 8 trading days, the yield on the 10-year leaped from 1.2% to 1.61% - a move of about 35%.

Higher, But Not High

Granted, yields pulled back a bit on Friday and closed at levels last seen a year ago - which at the time, were all-time lows. So, from a big-picture standpoint, yields returning from their COVID-induced record lows to the prior all-time low means rates remain quite low by historic standards. Perhaps the best description of the big-picture situation here is rates are "higher but not high."

It can also be argued that the increase in rates back to more "normal" levels shouldn't be surprising given the expectations that the economy is should return to some form of normalcy in the coming months. But in Ms. Market's game, it's the big surprises that get traders' attention, and the spike in rates certainly qualifies as such.

1 2 3 4
View single page >> |

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.