I am not quite sure what to make of it just yet but we are seeing yields rising across the latter end of the curve today. Yields have generally been quietly sneaking up in the last few sessions but when the Yen fell below PAR with the US Dollar yesterday, something changed in the interest rate markets and they are now spiking.
So far we have watched stocks rally into the stratosphere without a large outflow from bonds in general. I think this is because traders/investors still are a bit leery of this broad based equity market rally especially given the signs of a general slowing of overall global economic conditions. With commodity prices sinking, there has been a consensus that inflation is a non-factor and thus bonds are an okay place into which to diversify some money, "JUST IN CASE".
This week however seems to have brought an indication that things might just be shifting a bit. As you can see from the chart, the Ten Year is pushing back towards the 2% level. Rates have not been able to sustain themselves above this level for any length of time. If they do, then we will want to take note of it since it would be a very serious indicator that sentiment towards bonds and thus inflation, could be undergoing some re-evaluation.
What is especially interesting to me is that this spike higher in interest rates is occurring against a backdrop of sinking commodity prices. On the one hand we are getting deflationary signals in that sector. On the other hand, interest rates are rising. Hmmm......
We keep getting comments from the various Fed governors that inflation is not a concern. As a matter of fact, some were just recently concerned that it was perhaps too low! Needless to say, this assessment does not square with a rise in rates on the back end of the curve. The market is obviously beginning to contradict this although I want to repeat that this is not as of yet confirmed.
Stay tuned on this one.... These interest rates are the single most important market on the planet in my opinion and any shift in sentiment, albeit even a small one, must not be ignored.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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