The commodities market opined on the Middle East by appearing to price out risk of further escalation between Israel and Iran, or at least further escalation that endangers energy assets. The stock market was also happy ahead of key data and earnings reports from 5 of the Mag 7 this week. Yields continue to rise with commentary tending to continue to believe at some level it's tied to increasing odds of a "red wave". Both the 2Y and 5Y auction were relatively weak, the 2Y had weak bid-to-cover and foreign demand and the 5Y tailed 1.6bps. The 30Y mortgage rate is back to 7%, I don't think many saw that 100bp increase coming a month or so ago.
Speaking of Treasuries, there's been a little bit of talk about the return of "term premium" to the long end of the curve. As I mentioned back here, term premium in bonds is an excess expected yield over and above that expected short-rate path, which is compensation that investors get for bearing interest rate risk in a longer-term bond (additional compensation that the path of rates is not certain). What's interesting is that back in October of 2023, term premium was a hot topic. There was definitely a view of some FOMC members that rising term premiums would do some of the work for the Fed reducing the need for additional tightening, how does that play now that the Fed is cutting? At that time both 2Y and 10Y rates were over 5%. Additional views on term premium range from a view that "term premium" is really just a code word for where inflation expectations are hidden to a view that the U.S. is losing it's exboritant funding privelege.
Whatever the view, it's still interesting that the steepness of the 2Y10Y is only 15bps, with the 2Y is 4.14% and the 10Y at 4.29%. Is anyone in the term premium camp willing to bet on a bear steepening?
On the day ahead we have JOLTS and the 7Y auction as highlights in data and Alphabet on the earnings front.
XTOD: New: Airlines in the US are now *required* to give you a REFUND for a canceled or significantly delayed flight, automatically. The DOT's "automatic refund provision" went into effect today. Good news for travelers with a month until the holiday rush begins.
XTOD: This 10yr UST trend has certainly not been kind to anyone in #RealEstate. Equities continue to ignore yields.
XTOD: Channel 13 reports that the Israeli Security Cabient has made the decision to launch another Retaliatory Action against Iran soon, due to their Role in a recent Drone Attack by Hezbollah, which Targeted the Home of Israeli Prime Minister Benjamin Netanyahu.
XTOD: from $PLTR cofounder @JTLonsdale “I’m fucking rich, Michael”
“I would be fine to pay way higher taxes myself just to have a competent functioning society.
“I would pay a 90% tax rate if we could keep our society competent. If we could stop having illegals swarm into our country if we could fire unaccountable bureaucrats, if we could put systems in place to make our government competent, if we could stop having regulators harass and destroy and impune builders.
“I will pay whatever taxes that takes, I’ll pay 90% of my fortune. We need our country to be functional for my kids and grandkids and everyone else…”
XTOD: Cool story about Zuck teaching a class of middle school students about business (and life). He wrote 4 life lessons on the chalkboard:
1) Love yourself
2) Only then can you serve others
3) Focus on what you can control
4) For things you can control, never give up
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https://x.com/petemuntean/status/1850998662576685440
https://x.com/AdvisorJohn/status/1850930950810603564
https://x.com/sentdefender/status/1850981573270880550
https://x.com/jawwwn_/status/1850953399858315721
https://x.com/buccocapital/status/1850906905847144860
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