The US still has a steeply upward-sloping yield curve, but Russia has the exact opposite: a steeply downward-sloping or inverted yield curve.
Here is a comparison of the US Treasury Actives curve (steeply-upward sloping) compared to Russia’s sovereign curve (steeply-downward sloping).
Russia’s technical default on international bonds has led to its 5.25% coupon international bond (denominated in Euros) to plunge from 131.6 in September 2022 to only 21.75 this morning.
Commodity prices? Commodity prices saw the biggest one-day gain in 13 years on Tuesday.
Between Biden’s anti-fossil fuel executive orders and the Russian invasion of Ukraine, gasoline futures are up 126% since the start of January 2021.
As someone who needs to move to Ohio, I would really appreciate it if mortgage rates would more closely follow the 10-year Treasury yield. But alas, Bankrate’s 30-year mortgage rate just rose to 4.30% as the US Treasury 10-year yield dropped -8.2 basis points.
Europe. Middle East and Africa (EMEA) sovereign yields are all down over 10 basis points averaging around -15 bps.
Ukraine’s 10-year yield has plummeted by -48.3 bps this morning.
The anticipated meeting between Russia and Ukraine on Belarus soil was a failure. Likely due to Belarus showing-off their modern air force capabilities.
I admit, I follow market data to get a signal of what is happening to mortgage rates and I got one. With Putin and Russia invading Ukraine, markets are in turmoil
WTI Crude is up 8.14% this morning, Brent Crude is up 8.45% and NBP (UK) Natural gas is up 40%.
Europe is having a bad day equity market-wise. Eurostoxx 50 was down 4.92%. The US Dow is braced for a 2.5% opening.
Now to bonds. The 10-year Treasury yield is down 13.3 bps this morning. Sweden and UK are down 10 bps as well.
How about the new Russian front? Ukraine’s 10y yield rose 691.0 bps while Russia’s 10Y yield rose 435 bps.
Russian 5Y Credit Default Swaps (CDS) leaped to a Greek-like 917.
Well, it looks like the sanctions imposed by Winken (US VP Harris), Blinken (US Secretary of State) and Nod (US President Biden because he always looks half-asleep) apparently didn’t work as intended.
Federal Reserve Bank of St. Louis President James Bullard said he supports raising interest rates by a full percentage point by the start of July — including the first half-point hike since 2000— in response to the hottest inflation in four decades.
“I’d like to see 100 basis points in the bag by July 1,” Bullard, a voter on monetary policy this year, said in an interview with Bloomberg News on Thursday. “I was already more hawkish but I have pulled up dramatically what I think the committee should do.”
Bullard’s plan involves spreading the increases over three meetings, shrinking the Fed’s balance sheet starting in the second quarter, and then deciding on the path of rates in the second half based on updated data. He said he was undecided on whether the March meeting should begin with 50 basis points, and would defer to Fed Chair Jerome Powell in leading the discussion. Powell, at a press conference in January, didn’t rule out the idea of such a move.
Bullard’s comments, along with the war drums along The Potomac about a Russian invasion of The Ukraine, are causing the 2-year Treasury yield to rise faster than the 10-year yield.
Resulting in a crashing 10Y-2Y curve.
The GINI measure of income inequality is at an all-time high as the purchasing power of the US Dollar is at an all-time low. Way to go, Federal Reserve and Congress!
What will The Fed decide at their emergency, closed-door meeting today? Nice transparency, Powell!
Once upon a time, European PIGS (Portugal, Italy, Greece and Spain) saw incredible spikes in their sovereign yields related to Greek credit default contagion. But the European Central Bank (ECB), World Bank (WB), International Money Fund (IMF) rose to the rescue.
But here we go again! Thanks to rising inflation, the ECB is threatening to remove the massive monetary stimulus. Sound familiar??
Here are the Eurozone 10-year sovereign yields as of this morning. Greece is up a whopping 27.4 basis points, Italy is up 11.7 BPS, Portugal is up 9.3 BPS and Spain is up 9.2 BPS. The core of the Eurozone, France and Germany, are up 4.3 and 3.0 BPS, respectively.
Germany has REAL 10Y Bunds yields of -4.7%.
Like the USA, the Eurozone Taylor Rule is much higher than the ECB’s Main Refinancing rate of 0%..
Here is ECB’s Christine Lagarde saying “What, me worry??”
Raphael Bostic and Goldman Sachs are both calling for dramatic rate increases to fight inflation … that they helped cause with their monetary stimulypto. I call this The Fed’s March of the Toreadors as The Fed now attempts to kill the bull market.
(Bloomberg) — The Treasury yield curve flattened to the lowest level in over a year on Monday as the prospect of a super-sized Federal Reserve rate increase in March gained traction, weighing disproportionately on shorter-dated tenors.
Two-year U.S. yields climbed as much as 4 basis points after Raphael Bostic, the president of the Fed’s Atlanta branch, said the U.S. central bank could raise its benchmark rate by 50 basis points if a more aggressive approach to taming inflation is needed.
That narrowed the gap with ten-year counterparts — which rose about half as much — to the least since October 2020. The last time the Fed delivered a half-point increase to borrowing costs was at the height of the dot-com bubble in 2000.
The repricing extended a move spurred last week, after Fed Chair Jerome Powell underscored the policy maker’s determination to put a lid on inflation. The market positioning may have been exacerbated by hedge funds that had been leaning the wrong way before Powell’s address.
Traders are currently betting the Fed will deliver 32 basis points of tightening in March, more than fully pricing an increase of a quarter-point. That puts the implied probability of a 50-basis-point increase at almost 30%. The odds of such a move in December were zero.
Consumer prices rose an annual 7% in December, the fastest pace in almost four decades. Powell left the door open to increasing rates at every meeting, and didn’t rule out the possibility of a 50-basis-point hike.
In an interview with the Financial Times, Bostic stuck to his call for three quarter-point interest rate increases in 2022, while saying that a more aggressive approach was possible if warranted by the economic data. Bostic is a non-voting member of the FOMC this year.
Since the rapid growth in inflation was caused by a combination of too much Fed stimulus, too much fiscal stimulus and “green” energy policies, it is unclear whether an increase of 50 basis points will do much, particularly if Bostic’s own Atlanta Fed GDPNow forecast of 0.051% is accurate. Raising ratesif the economy is slowing??
To be clear, Bostic and others are trying to signal The Fed’s intent well in advance to avoid a surprise knock-down of the stock market. Or a killing of the bull market.
Well if the Atlanta Fed’s GDPNow forecast is accurate, The Federal Reserve is going to have to think about its 5 upcoming rate cuts. Because its Crying Time for the Biden Administration.
The 10-year Treasury Note yield rose to 1.869% this afternoon as Freddie Mac’s 30-year mortgage commitment rate rose to 3.45%.
And if you like The Fed Funds Futures data, it is pricing in 4 rate hikes by The Fed (March, June, September and December). For a grand total of … 100 basis points or 1%.
By keeping rates soooo low for soooo long, The Fed has committed a serious policy error. Or as Kevin Malone calls it, “The Fed’s Famous Chili!”
Well, Omicron is hitting hard. Not the virus itself, but governments’ reaction to the virus. The NY Empire Manufacturing Index has tanked into negative territory.
New orders are down 5%.
On the energy front, West Texas Intermediate Crude Oil futures are up 79% since January 1, 2021 while regular gasoline prices are up “only” 50% over the same period.
How about inflation and the Treasury yield curve? Inflation has soared to 40-year highs under Biden as energy prices (WTI Crude Futures) have soared 79%.
Container ships are still backed-up at LA and Long Beach ports. I thought Mayor Pete was supposed to fix the port congestion problem!
Confounded Interest - Anthony B. Sanders 