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Treasury yields not adding up
What is going on with U.S. Treasury yields? Can nothing nudge them from their current low-laying perch? Something seems very out of whack, but let’s just agree not to call it a conundrum.
There’s plenty out there that should be ratcheting up interest rates. The U.S. stock market has been on fire, with the S&P 500 still hovering near its best levels since October, the White House is projecting $9 trillion in debt over the next 10 years, the economy is showing signs of improvement (a bond very unfriendly development), and a flood of new debt is already washing over the U.S. Treasury market
In fact, the U.S. Treasury sold $42 billion of newly minted two-year notes on Tuesday with little trouble and will dump another $39 billion of five-year notes later today. And this after a record quarterly refunding, $75 billion big ones, hit the market just two weeks ago. Just how much supply does it take to convince investors to start charging higher interest rates?
The chart below shows the trajectory of the 10-year Treasury yield. The most recent peak of 3.85% was Aug. 7, before the refunding and before the Fed’s announcement on its Treasury purchase program winding down. It’s about 40BPs lower now.
It’s a long way from 950 for the S&P 500
It’s hard to believe that little over a month ago, investors were holding their breath to see if the S&P 500 had enough momentum to burst through 950 – a psychological level that had held firm since November of last year. Carry through buying Monday from last week’s renewed cheer that the U.S. and global economies were leaving recession behind has pushed the S&P 500 to 1033, its highest level since Oct. 6, 2008 when it traded at 1056.89.
But as I noted here last week, markets continue to be pretty fickle when it comes to betting on recovery vs. continuing slump.
Easy does it on the exuberance
If it keeps going like this, Ben Bernanke will have to give an irrational exuberance speech.
Today, stocks jumped to fresh multi-month highs and Treasury yields climbed after a report on July manufacturing activity made investors feel even more optimistic about the future. Sure, manufacturing is still contracting, but that’s only a minor detail for those convinced that a burgeoning economic recovery is the real deal.
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The Wall
