Despite strong ISM Services and jobless claims to start yesterday, yields ended lower as markets focused on news like that out of Walmart, which is cutting starting pay for some new hourly workers. To start the day, yields are relatively flat with 10Y at 4.24% and 2Y at 4.94%. As we head into Fed's blackout period, NY Fed President Williams yesterday seemed to join the chorus of Fed officials who seem to generally be promoting a "pause" at the upcoming meeting. With the yield curve still in deep inversion, there was a good St. Louis Fed post yesterday on the yield curve inversion and recession probabilities. In it the author derives a lower recession probability if you look at the inversion of the yield curve in "real" (inflation-adjusted) terms.
As an aside, probably one of the worst takes I hear seemingly daily in the financial media goes something like: 'the U.S. economy is so much less interest rate sensitive because people have used fixed rate debt'. From there the pundit will typically follow that with a statement to a seemingly logical conclusion that goes something like 'therefore the Fed's rate hikes are less impactful...or therefore 'long and variable lags'. That all seems reasonable. So why do I think this is a bad take? The reason I think this is a bad take is that it fails to recognize that fixed-rate liabilities are someone else's fixed-rate asset. What is therefore great for someone who borrowed at a low fixed rate is equally bad for someone who holds that loan/security as an asset. These same pundits often talk about Fed policy working through financial conditions and wealth effects, but then seem to skip the step where they account for the mark-to-market losses that anyone who holds a fixed rate asset with a low interest rate are experiencing. It's only been 6 months since SVB and concerns about banks mismanaging duration risk were all the headlines and I guess now we only account for the gains from holding fixed rate liabilities on the books of homeowners and corporations.
Now if you want to get into a discussion around the structure of the U.S. economy and how it's shifted to a more technological based and services oriented economy, or how certain industries have lower leverage than the past, then I can probably buy into the narrative that the economy as a whole might be less interest rate sensitive, but that's not the sound bite narrative I hear on TV.
On the day it's Wholesale Inventories and Consumer Credit
XTOD: SBF has no friends left.
XTOD: Scoop: TikTok's Shop marketplace is live for some US users. It looks like an Amazon copycat and is full of cheap Chinese goods.
XTOD: Is there any research or empirical support to the notion that the last mile on inflation is the hardest? (serious question)
XTOD: The authors' findings show the significant uncertainty surrounding the measurement of inflation in real-time, which adds to the challenges faced by policymakers, analysts, and the general public in analyzing inflation.
XTOD: They are not pouring money into “alternative” assets. They are pouring money into over-priced (and over-fee’d) under-expected returned beta (plus some vol laundering). Overpriced beta ain’t “alternative.”
XTOD: US investment-grade bond supply over the first two days after Labor Day has totaled $52.6 billion, the third largest over the same period since 2010: Bank of America research.
XTOD: Seems like everyone has forgotten about the banks just as they are flashing warning signs again
https://twitter.com/alexbarinka/status/1699886750389408218?s=20
https://twitter.com/scottmelker/status/1699870820795888023?s=20
https://twitter.com/jc_econ/status/1699877350391902485?s=20
https://twitter.com/NewYorkFed/status/1699870303793349108?s=20
https://twitter.com/CliffordAsness/status/1699883960380387400?s=20
https://twitter.com/lisaabramowicz1/status/1699873212761264424?s=20
https://twitter.com/INArteCarloDoss/status/1700027539178106977?s=20
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