Homepage / Investment / Many forces are in place that could keep pushing rates even higher
Leaders of two Koreas hold surprise meeting as Trump revives hopes of summit with North Ireland set to end abortion ban as exit polls signal landslide vote Billionaire entrepreneur Richard Branson says he's 'neck and neck' with Bezos in the space race South Korea relieved about Trump-Kim summit revival efforts Top VC deals: Kroger buys Home Chef, PayPal buys iZettle and Rover raises $155 million Next time you buy a TV at Best Buy, you may be offered health care, too MVP robots won't take football players' jobs, but they may just save their legs The government could save $1 billion by combining its 12,062 data centers — but it's behind plan Elon Musk may actually be making a website to rate journalists for credibility and 'core truth' Bank of America outlines tips investors can use to beat the market Silicon Valley investors explain why they're scared of China YouTube Music is really good, but probably not enough to pull you away from Spotify Trump administration is telling Congress it has an agreement to save China's ZTE: New York Times No recession until late 2020, so keep buying stocks, Credit Suisse says Moody's warns of 'particularly large' wave of junk bond defaults ahead Cryptocurrency stunt to climb Mount Everest reportedly turns deadly Chinese police take down gang of inventive online reputation cleaners Italy's Conte struggles to form team; markets tumble Cramer: Foot Locker's stellar earnings show the 'mall is still not dead' yet Roku shares jump after short-seller reverses call, says he doesn't want to bet against cord-cutting Wyoming's plan to diversify its economy from fossil fuels … to blockchain Facebook, Google face complaints worth $8 billion over alleged breach of new EU data law Apple's self-driving partnership is the next phase of 'Apple as a service,' Gene Munster says Consumers expect smaller gains in income than a year ago, May sentiment survey finds Herbalife shares plunge after Carl Icahn said he is lowering his stake in the company South Africa's ailing state-owned firms set to invest billions in dramatic reform program Why you're suddenly getting lots of emails from sites you haven't visited in years 'Fortnite': This is how a free video game might make $3.5 billion White House official: Trump could take a harder line on trade with China now that the Kim Jong Un summit is off Stocks making the biggest moves premarket: FL, HIBB, BKE, GPS, DECK, ADSK, ROST, AZN & more Apple blocks Steam's plan to extend its video games to iPhones Foot Locker shares are jumping 15% after a blowout earnings report PayPal upgraded by Stifel because of its addition of new financial services Samsonite slides for a 2nd day after a short-seller attack, but some analysts are unfazed US Commerce Secretary Wilbur Ross to visit China for trade talks in early June A specialty retailer up 118% in one year could have more room to run after earnings Gold is back: The rise in geopolitical tensions boosts precious metal prices The 'Meghan Markle Effect' is boosting gold jewelry sales US media websites down in Europe after a huge data law shakeup Tencent's WeChat drops 'sugar daddy' dating website Autodesk forecasts second-quarter profit below estimates Turkey's leadership scrambles to regain investor confidence in its monetary policy Italy's Enel accuses Spain's Iberdrola of 'aggressive' tactics in Brazilian power struggle Sanctioned tycoon Deripaska resigns as director of his firm Rusal The battle for the biggest prize in soccer, worth $370 million, is taking place this weekend One of the biggest names in advertising thinks you're going to get paid for sharing your data European markets seen higher after Trump scraps US-North Korea summit US jury awards Apple $539 million in Samsung patent retrial How Europe’s new privacy law called GDPR is creating big business opportunities Trump can take some lessons from the failed summit with North Korea, says a former US ambassador A Trump-Kim meeting could still take place down the road China's box office recently beat the US, and is now on the cusp of a 'new growth cycle' Steve Cohen's Point72 is bullish on Asia — and they like these sectors The crackdown on cryptocurrencies is a good thing, say traders Read the full statement from South Korean President Moon Jae In here Asian stocks poised to slide after Trump cancels North Korea summit Cramer Remix: Don’t let this buying opportunity pass again Indigo Agriculture CEO wants to change economics for farmers with a 'revolution in agriculture' The phone company founded by Android creator Andy Rubin is reportedly for sale US bill would force tech companies to disclose foreign software probes Nutanix falls on a wider-than-expected quarterly loss Google employees are spending heavily to elect Democrats in California and to flip the House How to send your Twitter feed back 10 years and see early, silly tweets Facebook shows once again that it does not understand or value journalism Whip yourself into shape by using this Apple Watch feature to compete against friends and family Trump and Europe are entering a 'game of chicken' over Iran nuclear deal sanctions New Boeing 777 will have folding wings Facebook and Twitter announce stricter political ad guidelines ahead of midterms Here is the federal labor complaint the United Auto Workers just filed against Tesla Elon Musk has a history of wild ideas — some of them have worked out Netflix passes Disney and is now biggest pure media company in the world by market value Zuckerberg says Facebook has 'always shared' the values of Europe's new data law Best Buy’s big sell-off could soon be a buying opportunity, says market watcher Iran's Supreme Leader just made 5 tough demands for Europe to save the nuclear deal Ray Dalio said last year gold was good protection because of Trump and North Korea 'playing chicken' Classic dividend stocks are tanking, but think before you make the mistake of selling Watch Facebook's Mark Zuckerberg speak at Viva Tech 2018 as concerns over data protection heighten North Korea summit cancellation part of 'downside risks' for the economy, Fed's Bostic says Spain economy minister says he's not concerned about Italian bond market contagion Art Cashin: Stock drop reflects mistaken assumption Trump would do everything to make North Korea summit work Uber ‘moving in the right direction’ and will hopefully keep London license, exec says Labour laws in 104 countries reserve some jobs for men only Dear oil helps some emerging economies and harms others Tailor shops are a thriving pocket of enterprise in Pyongyang Why it makes sense to invest in Treasury bonds Why even bears about the government-bond market can find merit in Treasuries Who will be the main loser from Europe’s new data-privacy law? What is an audit for? As Tesla’s share price falls, it becomes an inviting takeover target How kidnapping insurance keeps a lid on ransom inflation CEO says Crowdstrike's security platform could someday attract Amazon, Google Cisco CEO Chuck Robbins speaks at VivaTech 2018 amid heightened cybersecurity concerns South Korean stocks ETF tumbles after Trump cancels meeting with North Korea's Kim Jong Un Cramer: Trump's investigation into auto imports in the name of national security is a 'stretch' Existing home sales drop 2.5% in April Gold jumps after Trump cancels North Korea summit as global investors seek safety Uber's self-driving SUV saw pedestrian in fatal accident but didn't brake, officials say Trump cancels Singapore nuclear summit with North Korean leader Kim Jong Un JP Morgan: Charts show new market highs are coming soon, led by bank stocks GE doesn't plan to cut dividend again, sources say


Many forces are in place that could keep pushing rates even higher

A turbulent bond market sell-off on Tuesday sent interest rates to new multiyear highs, and signals the potential for a new trend that will push borrowing costs even higher on a wide range of business and consumer loans and mortgages.

The selling was sparked by stronger economic data, but the market has been itching for a move higher in yields, which rise as bond prices fall. The benchmark 10-year yield ripped above 3 percent and was near a seven-year high of 3.07 percent in midday trading. Mortgage rates are also at a seven-year high.

Tuesday’s report on April retail sales was basically in line with expectations with a 0.3 percent gain. But revisions to March retail sales data showed spending was up 0.8 percent, from 0.5 percent, and that relieved some concern about the strength of the consumer. The Empire State survey also showed manufacturing activity in New York was better than expected.

Strategists say the reports were the immediate catalyst, but they also point to the fact that the U.S. has a massive amount of debt to sell this year, and foreign buyers are not showing the same appetite they once had. At the same time, the Fed is set to raise interest rates two more times this year, and the market is increasingly pricing in a third hike.

Yields moved higher Tuesday along the entire Treasury yield curve from 2-year notes to 30-year bonds, but the widely watched 10-year made a significant move and appears to have broken into a new trend. The 10-year hit a high of about 3.069 percent, up from 2.995 percent Monday. That new level may now mean the 10-year yield could hold above the psychological 3 percent mark.

“It appears to be definitively broken through 3 percent. We’ve tested it a couple times. It seems like we’re pretty well north of that level. … Seeing this is not a surprise, but the speed at which we’ve gotten above 3 percent is notable,” said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch. “The catalyst obviously is this morning’s data. While it was encouraging, the move seems outsized relative to the surprise, which suggests there are positioning factors at play.”

Earlier this month, the Treasury Department expanded the size of Treasury auctions and it is expected to do so again this year to meet its obligations as the federal deficit balloons, due to massive tax cuts and stimulus spending. Last year, the government issued $540 billion in Treasurys, not including bills, and this year, that could approach $1 trillion.

“We just got a very daunting supply backdrop in the U.S. Some of the more stalwart buyers, particularly some of the foreign private investors, are not as robust as they had been in prior years. In that environment, it has allowed rates to press higher,” said Cabana. He expects to see a 3.25 percent 10-year by year-end, while other forecasts are at 3.50 percent with some even as high as 4 percent.

The 10-year first reclaimed the 3 percent level in April and has been flirting with that milepost ever since. But on Tuesday, it succeeded in definitively smashing through that level, hitting the highest rate since the summer of 2011 — in the months before the U.S. debt rating was downgraded and Congress was embroiled in a debt ceiling battle.

Stocks sold off sharply amid concerns about the jump in rates, and the Dow was down nearly 1 percent in early afternoon trading, regaining some lost ground.

Higher yields have been already impacting mortgages with the 30-year fixed rate mortgage rate likely to end Tuesday at about 4.875 percent for the best credit-worthy borrowers and 5 percent for the average borrower, according to Mortgage News Daily.

About half of Tuesday’s move in Treasury yields can be attributed to the data and a sell-off overseas that spilled over to the U.S., said Michael Schumacher, director rates strategy at Wells Fargo. But the rest of the move was hard to explain fundamentally.

“I think it’s important to get above 3 percent and show some upward momentum,” said Schumacher. “I’m not hung up on whether it’s 3.03, 3.04, or 3.05 but it’s a pretty sizable move and that’s important.” Schumacher said lots of buyers seem to be lined up at 3 percent but it isn’t clear whether they are there for 3.04 or 3.05 percent.

“There’s a big technical element here. I’m not going to dismiss retail sales and some of the other data, but this is a technical move and a technical move always needs fundamental justification,” said David Ader, chief macro strategist at Informa Financial Intelligence.

The 2-year yield reached 2.577 percent Tuesday, its highest level since 2008. The 2-year is most reflective of the Fed tightening, and it moved higher with the entire yield curve.

“A new trend is developing and that’s towards higher rates,” said Andrew Brenner of National Alliance Securities. But he said for the trend to be confirmed, the 30-year bond needs to see its yield move toward 3.25 percent. The long bond was yielding about 3.19 percent Tuesday.

“What you need to actually call it a bear market, or bear trend, you really need confirmation with the long end,” he said. “If you were to close above 3.05 that would start the trend, but we’ve seen these fakeouts before. You don’t really have confirmation until you solidly break 3.22 (on 30-year).”

Tuesday’s big bond move managed to steepen the yield curve, meaning yields like the 2-year versus 10-year got wider apart. They had been flattening, and the 2-year and 10-year yield are the closest together they’ve been since 2007. That flat curve could be a sign of worry about the economy, and an inverted curve, where the 2-year would actually rise above the 10-year, is viewed as a reliable indicator of recession.

Some strategists say the curve flattening is a result of the Fed raising rates, pushing the 2-year higher, but demand for longer-dated bonds keeps down the 10-year. But there are also other factors that could affect it, like tame inflation.

“It’s telling us the market is not getting overly concerned about inflation. … Yes we had this technical breakout and maybe we can price a little more of the Fed which is going to lift all rates, but still this steepening to me is very corrective. The flattening is continuing to tell you inflation and much faster growth are not in the cards for the bond market,” said Ader. “It’s more accommodation for the increased auction size, but it’s not a story of growth and inflation.”

Source: Investment Cnbc
Many forces are in place that could keep pushing rates even higher

Comments are closed.