The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Breather
Treasury yields climbed again and the bond market is essentially back to the yield levels where Secretary Bessent announced the boosted bond-buying intention. Despite today’s higher yields, the stock market rallied. Futures began rallying around 2 AM and the index opened up 30 points. There was some chop intraday but nothing too dramatic. Crude climbed just a bit, so that influence was minor. Precious metals rallied well again but it was crypto that really benefited. Bitcoin was up about 6% today and is up 20-plus percent for the week. Overall capital flow remained light at 84% today, a curious lack of investor activity considering the market developments.
Eyes are on the Treasury market. The yields are backing up again but stocks are not too concerned today. If yields climb significantly from here, I suspect stocks will be much more influenced. The bond market looks poised to print fresh highs in yields, presumably to see what the Treasury will do. The tennis game is ongoing and once yields break upward, the ball will be in Treasury’s court. Frankly, any part of the government could get involved but the Secretary of the Treasury started the game so people are focusing on him.
I do not know what the bond market would like to hear. Is the bond market hoping for Treasury to double-down or triple-down, or 10x-down? Is the market challenging the Treasury Department to see just how powerfully the government will respond? Does the market actually want the government to force yields to reverse?
I’m skeptical. The bond market has been a bearish one all year. That market sees, or fears, *something.* If the Treasury throws huge sums of money at the curve, just to push rates down, that won’t change, or fix, whatever the bond market has been focusing on.
I just wish we had more clarity on why the bond market has been marching rates higher all year. Inflation was the narrative in the news but now it’s joined with the deficit concerns. Is one issue more significant than the other? Is there a lesser-discussed, or even hidden, third issue that lurks but ultimately matters more?
Inflation and credit risk. Those are always important. They just happen to be particularly significant to all markets this week. I perceive this to be a technical drama. The new highs in yields look bad on the charts and sound bad in the press. However, the economic situation this week isn’t materially different than last. And yet this week, the market is experiencing drama while last week it was just summer trading.
For today, the drama spillover paused and dip-buyers made their move. I guess we just want to go into the weekend with a bit of optimism and see what Monday brings.
Fair enough.
See you then, have a great weekend.
-Mike
Visdom Market Commentary
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