Word on the street is that real rates are surging. SURGING, I tell you!!
The financial press gets caught up in the moment, swept along in the excitement, elation, and fear of any directional market move. During such times, it is especially valuable to step back, look at the bigger picture, and ascertain if the long-term prevailing trend is at risk of a breakout or reversal.
Take the US 10-year yield:
Looking at a monthly chart, we see 40 years of a very clear downward trend.
That "surge"? Well, look for yourself.
Barring something as extreme as China throwing a firesale on US paper, I expect this trend to continue for quite a while longer. There is a lower bound to yields, but that bound is continually being pushed lower as rates are cut, other central banks foray into negative rates, and investors/funds begin seeking the 'least-worst' store of value.
This demand shift pushing the lower bound lower is what has formed the lower bound of the downward trend channel on the chart.
I'm dubious about this 'reflation trade' story:
The search for yield, and even simply 'least-worst' store of value is the prevailing force in this market.
US treasury yields can only outperform so far in the broader market of debt instruments before they attract more buyers. Negative rates in other nations have intensified this effect.
This behavior forms the upper bound of our downward trend channel.
Perhaps we'll see by the end of December if this "surge" is an actual SURGE.
For myself, I will be respecting the strength of this 40 year trend, and expecting any strong upward move in yields to only tag the upper bound of the channel, (if even that far), before reversing to the downside.
The financial press gets caught up in the moment, swept along in the excitement, elation, and fear of any directional market move. During such times, it is especially valuable to step back, look at the bigger picture, and ascertain if the long-term prevailing trend is at risk of a breakout or reversal.
Take the US 10-year yield:
Looking at a monthly chart, we see 40 years of a very clear downward trend.
That "surge"? Well, look for yourself.
Barring something as extreme as China throwing a firesale on US paper, I expect this trend to continue for quite a while longer. There is a lower bound to yields, but that bound is continually being pushed lower as rates are cut, other central banks foray into negative rates, and investors/funds begin seeking the 'least-worst' store of value.
This demand shift pushing the lower bound lower is what has formed the lower bound of the downward trend channel on the chart.
I'm dubious about this 'reflation trade' story:
The search for yield, and even simply 'least-worst' store of value is the prevailing force in this market.
US treasury yields can only outperform so far in the broader market of debt instruments before they attract more buyers. Negative rates in other nations have intensified this effect.
This behavior forms the upper bound of our downward trend channel.
Perhaps we'll see by the end of December if this "surge" is an actual SURGE.
For myself, I will be respecting the strength of this 40 year trend, and expecting any strong upward move in yields to only tag the upper bound of the channel, (if even that far), before reversing to the downside.