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— There may be another explanation for the weakness in the US Treasury 10-year note prices, i.e. interest rates rising and it is not fear of renewed inflation.

— Flight-to-Safety buyers may be feeling safer, willing to take on more risk.

— Regardless of the appearance higher rates are a good thing. They are a sign of a strong economy.

— Waiting for Nvidia earning … Why?

Bond Vigilantes may not be the proximate cause of  a recent jump in 10-year UST yield.

In my last post I talked about bond market participants called “bond vigilantes”.

Who are they? “Bond Vigilantes are investors who sell government bonds in response to fiscal policies they view inflationary or irresponsible, …”

Potential tax cuts and tariffs, viewed as inflationary, may be raising their hackles.

Another factor may have to do with the potential experiential mismatches on the cabinet nominees that  are coming from the incoming administration. My sense is that the first hint of this came when hedge fund billionaire, John Paulson, withdrew his name from consideration for the job of Secretary of the Treasury. This is serious business, an important call and must be someone with experience in the markets and economics.

As of the composition of this post Treasury has yet to be resolved.

Another factor may be at work: Flight-to-Safety Buyers

The flight-to-safety 10-year buyer uses the note as a hiding place. Whenever things get dicey they pile into this security based on the guarantee provided by the US government of timely payment interest and principle. The most stunning example of this came March 8, 2020 when the 10-year UST note traded at a record low yield of .318%. For those with short memories this was at the height of the Covid-19 panic. Before the panic (in Feb 2020) those bonds were trading at over a 1.5% yield.

This was absolutely the worse time to buy bonds or sell stocks in recent memory. The flight-to-safety crew didn’t care. Anyone buying bonds at this level (if they continued to hold them) would have suffered a tremendous loss of purchasing power and would have had to hold them to maturity in order to get their full principal out. Oh yes, and their reward to hold would have been a measly 1.5% per year yield over ten years. My point is you have to be particularly nimble to play this game.

Over the past year we have had constant warnings and commentary about the recession that was sure to come (that has yet to rear its ugly head) due to Fed policy. People involved trying to outsmart the market via the flight-to-safety trade may have now been placated by the assumed capabilities (deserved or undeserved) of the incoming administration … being better on the economy. This could easily be bringing bonds to market for sale, lower prices and raising yields. In other words these higher yields we worry about may be a good sign, a return to confidence and a greater degree of risk tolerance.

Waiting for Nvidia: Why?

Waiting for Nvidia to announce its quarter earnings feels like Fed Wednesday. Stocks sell off or mark time until the announcement of a policy change or the numbers, which will come after the close tonight, November 20. As I write this post, investors wait with bated breath. The CBOE volatility index (VIX) is up 1.94 (+12%) at 18.24. Significant fear would be indicated by this number.

Nvidia represents about 7% of the market capitalization of the S&P 500’s $50 trillion market capitalization. If Nvidia lays an egg today, it will move the “big tech” market along with many other tech names that rely on artificial intelligence as the hook they have used to gain investor support. The flip side is that the broad economy appears quite strong and this includes a lot more companies outside of the AI arena. I can understand the “why” if your portfolio is heavily weighted to tech and AI, you are vulnerable to some pain. What I don’t understand is why the rest of the market is holding its breath. Importantly, the market ex-“big tech” is not overvalued and money coming out of big and medium-sized tech will likely find a place in good companies outside of tech.

More By This Author:

Bond Vigilantes Fire Warning Shots
Black Swan Vs. White Swan
What’s Wrong With This Picture – Fed Easing With The Yield On The 10-year UST Back Over 4%?