Displaying items by tag: bonds

(New York)

The trade war has really taken a toll on Treasury yields. The tensions between the US and China have made investors bearish about the economy, sending Treasury prices sharply higher, and steepening the inversion. Treasury yields just hit their lowest point since 2017, with ten-year yields falling as low as 2.27%, light years from where they were in the fourth quarter. Even the 30-year is only at 2.7%.

FINSUM: Yields are going to move in step with the trade war. We think the general trend will be downward given the market anxiety and the fact that the Fed is likely to be more dovish.

(New York)

Ten-year yields are low, very low, compared to where they were just a few months ago. Recently poor news on the trade front has sent yields spiraling lower, all the way down to 2.30%. The speed of the rally in Treasuries also prompts the interesting question of whether China weaponizing its Treasury holdings even matters. Yields have fallen so steeply, and there is so much momentum supporting the bonds, that even if China were to dump its holdings, it is hard to imagine that yields could jump back to even where they were a few months ago.

FINSUM: Let’s say hypothetically that China dumps its Treasuries. How far would ten-year yields rise? Maybe to 2.8%? We wouldn’t even be back to where we were in the fourth quarter, and it is hard to imagine that move having much of an impact on the economy itself.

(New York)

The big rally in ten-year Treasury bonds has created a worrying situation in the bond market—a steepening inversion. Despite the broad based rally, the negative spread between ten-years and three-month yields actually grew, as did the spread between two- and thirty-year bonds. Oil also plummeted 5%, as did the Dollar, a reflection of traders’ bets that the US is likely headed for a downturn and easier monetary policy.

FINSUM: The current inversion could just be a product of markets flows dictated by the trade war. What is worrying is that negative spreads actually widened instead of just staying flat, which adds more weight to the inversion-recession story.

(Beijing)

China has a massive hoard of US Treasury bonds worth over $1.2 tn. Many have speculated that as part of a trade war with the US, Beijing may flood the market with these bonds in an effort to enforce pain on the US economy. Recent market data shows it is likely already happening. China recently dumped $20 bn of Treasuries, a move that cannot be accounted for as part of normal market flows. The move was China’s largest sale in more than two years. The sale came in March, just before US-China trade tensions were again heating up.

FINSUM: Our view is that China is more likely to threaten doing this and perhaps do some in small chunks than actually pull the trigger. However, even if they do, yields have fallen so far recently that it is hard to imagine they would rise much beyond where they were a few months ago.

(New York)

There has been growing consternation about the threat of a major meltdown in corporate debt. The Fed, in particular, has been very troubled by the amount of corporate debt in the economy, which has led to speculation by Wall Street that there could be a blow up. Goldman Sachs has been more sanguine, saying debt levels look healthy. Now the Fed appears to be taking a more mild view as well. In a speech this week, Chairman Powell said that the comparison to pre-Crisis debt levels are not convincing. “Most importantly, the financial system today appears strong enough to handle potential business-sector losses, which was manifestly not the case a decade ago with subprime mortgages.

FINSUM: Debt levels seems high, but profits are margins are good to. The question is what happens when the economy turns south. We are especially concerned about the BBB market.