Rounding up the usual suspects after a new low

Ten-year bonds have broken out this month, with yields surging past 4.6% in Wednesday trading.

In such conditions, there’s nowhere to hide.

Bloomberg’s global version of the classic 60:40 (60% stocks and 40% bonds) portfolio also appeared to hit a durable low in October. It’s now dropped back below its 200-day moving average once more, for the first time since the turn of the year:

How Might We Have Known?

Check out the performance of Bloomberg’s index of the Magnificent Seven — Apple Inc., Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — in comparison with the S&P 500 equal-weight index, which effectively measures the average stock.

Markets appeared to be rebounding early Tuesday, before a fresh tumble. If there was a catalyst for that, it came from oil. 

A Possible US Government Shutdown


The Federal Reserve

With hindsight, rates were left too low for too long in 2021; that made it much easier to lock in low rates. The same lesson applies at the top. 

If the Fed wants some bang for its rate rises, it needs to leave them where they are for a while. It’s only recently that the notion has sunk in that the Fed really means it about keeping rates high for longer, and that is a problem.

Another issue is duration — sensitivity to rising rates. Bonds and other investments with a longer duration will see their prices hit harder by rising rates.

It was duration that precipitated the regional bank failures in March, as banks that had heavily invested in longer bonds were unable to access liquidity without taking losses.

John Authers Bloomberg 28 September 2023

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