Economy
Related: About this forumStock-market investors are getting nervous about this bond-market move that's only happened twice in over 40 years
Stock-market investors are getting nervous about this bond-market move thats only happened twice in over 40 years
Only twice since the early 1980s has the 10-year yield jumped simultaneously by about as much as the Fed has cut rates and it has a lot to do with rising inflation expectations
By Vivien Lou Chen
Published: Jan. 12, 2025 at 12:01 p.m. ET
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The benchmark 10-year Treasury yield is on a march toward 5% even after the Federal Reserve cut interest rates three times between September and December.
Photo: MarketWatch photo illustration/iStockphoto
Stock-market investors are turning jittery over something which has apparently happened only two times in the bond market since the early 1980s: The 10-year Treasury yield has jumped by about as much as the Federal Reserve has cut interest rates over the same period of time. The widely followed benchmark rate which influences the cost of borrowing on everything from corporate bonds to mortgages and auto loans has spiked to 4.77% from as low as 3.6% in mid-September, when the central bank began lowering rates by a total of a full percentage point over three months. In other words, the 10-year yield has risen by just a bit more than the combined size of the Feds three rate cuts between September and December.
Ordinarily, long-term rates on U.S. government debt fall during the 200 days before and after the central bank starts cutting rates, helping to ease financial conditions by making borrowing easier as has been the case during most Fed easing cycles since 1989. In the few cases when this didnt happen, the 10-year yield jumped by below a full percentage point, or less than it has now, according to data compiled by Torsten Slok, chief economist for New York-based Apollo Global Management.
The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting, Slok said this week. Among some of the questions people should be asking is whether the highly unusual bond-market moves are related to worries about the U.S.s fiscal situation, less demand for U.S. government debt from abroad, or a view that the Feds 2024 rate cuts were not justified, he said.
Fridays unexpectedly strong job gains of 256,000 for December, along with a University of Michigan survey showing rising consumer expectations for future price gains, pushed the risks of higher inflation back to the forefront of market participants thinking. U.S. stocks sharply sold off, with the Dow Jones Industrial Average falling by almost 700 points. Meanwhile, an aggressive selloff in bonds pushed 10- and 30-year Treasury yields to 14-month closing highs.
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bucolic_frolic
(47,922 posts)Last edited Mon Jan 13, 2025, 06:47 PM - Edit history (1)
'Crash" used a lot, comparing this coming year to 2022. A safe 4.5% suddenly seems not a bad idea.
Furthermore, Trump is trying to stimulate an economy totally maxed out on growth. To stimulate, you need capital, resources, labor. Trump will get nothing but inflation for his economic policy. The 1970s dreaded STAGFLATION all over again.
We are so screwed by this band of loons. Powell is all that stands between the USA and the abyss.
Bonus Time Update!
Two market technicians opined that the immediate likelhood going forward is for an 11% upward move before the crash. I follow these 2 regularly and they have creds. It makes sense, before a real crash there must be a blow off top. 3 to 6 month time frame, and I give credence to the April idea.
mahatmakanejeeves
(62,004 posts)T-bills. They have an auction every week.
And good morning.
mdmc
(29,269 posts)How would I purchase T BilLs?
mahatmakanejeeves
(62,004 posts)Head over to the Personal Finance and Investing forum. T-bills get talked about some over there.
Happy new year.
mdmc
(29,269 posts)thanks for the link