"Ten-year U.S. Treasury bond yields closed out a tumultuous week at 1.41% bps, pulling back after Thursday’s spike to a one-year high 1.61%.
Ten-year Treasury yields are now up 49 bps from the start of the year and almost 100 bps (1 percentage point) off August 2020 lows.
Surging yields are a global phenomenon.
Global bond markets have an inflation problem.
The international central bank community has an inflation problem.
The U.S., after all, is running unprecedented peacetime deficits, with a new $1.9 TN stimulus package scooting through Congress.
February 23 – Bloomberg (Gerson Freitas Jr.):
“Commodities rose to their highest in almost eight years amid booming investor appetite for everything from oil to corn. ... The Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, rose 1.6% on Monday to its highest since March 2013. The gauge has already gained more than 60% since reaching a four-year low in March 2020.”
Inflationary pressures are mounting and broadening – food, energy, housing and beyond.
There are worsening inflationary bottlenecks (i.e. semiconductors, global shipping, trucking, steel, myriad supply chains and so on).
... We’re in a period of unmatched synchronized global monetary inflation.
... Global “money” and Credit growth is unprecedented.
Governments around the globe are locked in massive deficit spending.
... Globally, tens of Trillions of bonds have been issued at artificially high prices (low yields)."
Coronavirus Watch:
February 22 – Associated Press (Adam Geller): “In recent weeks, virus deaths have fallen from more than 4,000 reported on some days in January to an average of fewer than 1,900 per day. Still, at half a million, the toll recorded by Johns Hopkins University is already greater than the population of Miami or Kansas City, Missouri. It is roughly equal to the number of Americans killed in World War II, the Korean War and the Vietnam War combined. It is akin to a 9/11 every day for nearly six months. ‘The people we lost were extraordinary’ President Joe Biden said Monday, urging Americans to remember the individual lives claimed by the virus, rather than be numbed by the enormity of the toll.”
February 24 – CNBC (Noah Higgins-Dunn): “New, highly transmissible Covid-19 variants ‘stand to reverse’ the nation’s control of the pandemic and could ‘undermine all of our efforts’ against the disease if the virus is left to proliferate in different parts of the globe, the head of the U.S. Centers for Disease Control and Prevention said…”
February 23 – Los Angeles Times (Melissa Healy): “A coronavirus variant that probably emerged in May and surged to become the dominant strain in California not only spreads more readily than its predecessors but also evades antibodies generated by COVID-19 vaccines or prior infection and is associated with severe illness and death, researchers said. In a study that helps explain the state’s dramatic holiday surge in COVID-19 cases and deaths — and portends further trouble ahead — scientists at UC San Francisco said the cluster of mutations that characterizes the homegrown strain should mark it as a ‘variant of concern’ on par with those from the United Kingdom, South Africa and Brazil… ‘The devil is already here,’ said Chiu, who led a team of geneticists, epidemiologists, statisticians and other scientists in a wide-ranging analysis of the new variant, which they call B.1.427/B.1.429. ‘I wish it were different. But the science is the science.’”
February 22 – Wall Street Journal (Marco Quiroz-Gutierrez): “Shares of small companies are outpacing their larger counterparts by the widest margin in more than two decades. Behind their rise: confidence among investors that heavy stimulus and coronavirus vaccine deployment will boost the economy. Through Friday, the Russell 2000 index of small companies had climbed 15% and set 10 closing records so far this year, well above the S&P 500’s 4% rise. That is the largest such gap between the two indexes through Feb. 19 since 2000… Over the past six months, they are beating the S&P 500 by about 30 percentage points…”
February 22 – Bloomberg (Drew Singer): “Special purpose acquisition companies are entering the most bullish stage of their lifecycle in record numbers this month. A surge of mergers by these firms is creating an unprecedented number of buying opportunities amid stagnation in the broader market. The number of acquisitions announced by SPACs has spiked to 48 so far in February, the most since at least 2008 and nearly doubling the prior high of 26 in October…”
February 24 – CNBC (Yun Li): “Charlie Munger… issued a dire warning on the manic momentum-driven trading activity by amateur investors and said commission-free trading apps like Robinhood were partly to blame for the bubble. ‘It’s most egregious in the momentum trading by novice investors lured in by new types of brokerage operation like Robinhood and I think all of this activity is regrettable,’ Munger said…”
February 23 – Reuters (Rajesh Kumar Singh): “An aerospace parts maker in California is struggling to procure cold-rolled steel, while an auto and appliance parts manufacturer in Indiana is unable to secure additional supplies of hot-rolled steel from mills. Both companies and more are getting hit by a fresh round of disruption in the U.S. steel industry. Steel is in short supply in the United States and prices are surging. Unfilled orders for steel in the last quarter were at the highest level in five years, while inventories were near a 3-1/2-year low... The benchmark price for hot-rolled steel hit $1,176/ton this month, its highest level in at least 13 years. Soaring prices are driving up costs and squeezing profits at steel-consuming manufacturers, provoking a new round of calls to end former President Donald Trump’s steel tariffs. ‘Our members have been reporting that they have never seen such chaos in the steel market,’ said Paul Nathanson, executive director at Coalition of American Metal Manufacturers and Users.”
February 24 – Financial Times (Aime Williams and Claire Bushey): “What started out as ‘temporary’ lay-offs earlier this month at General Motors’ plant in Kansas City soon became ‘indefinite’. Across town, Ford slowed down production of its F150 pick-up truck, the company’s cash cow, and did the same at another facility in Michigan. The carmakers were responding to a crippling shortage of the indispensable chips that are used to build modern vehicles, for everything from automatic braking systems to airbags and electronically adjusted seats. The shortages have shone a light on a cyclical corner of the electronics industry where there is often too much or too little supply, a problem that has been exacerbated by unpredictable demand for semiconductors during the coronavirus pandemic.”
February 22 – Bloomberg: “Copper rose above $9,000 a metric ton for the first time in nine years, taking another step closer to an all-time high set in 2011 as investors bet that supply tightness will increase as the world recovers from the pandemic. Copper is surging amid a broad rally in commodities from iron ore to nickel, while oil has gained more than 20% this year.”
February 23 – Yahoo Finance (Amanda Fung): “Home price growth in the U.S. accelerated in the final month of 2020 — the fastest pace in eight years. The results top off what was a record year for the housing market despite the COVID-19 pandemic. Standard & Poor’s said… its S&P CoreLogic Case-Shiller national home price index posted a 10.4% annual gain in December, up from 9.5% in November — the fastest growth rate since 2013… ‘Home prices finished 2020 with double-digit gains. The trend of accelerating prices that began in June 2020 has now reached its seventh month,’ said Craig J. Lazzara, managing director… at S&P Dow Jones Indices… He noted that the December annual gain ranks within the top decile of all of its reports, which dates back more than 30 years. ‘The market’s strength continues to be broadly-based: 18 of the 19 cities for which we have December data rose, and 18 cities gained more in the 12 months ended in December than they had gained in the 12 months ended in November,’ Lazzara said.”
February 24 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes increased more than expected in January, boosted by historically low mortgage rates and an acute shortage of previously owned houses on the market. New home sales rose 4.3% to a seasonally adjusted annual rate of 923,000 units last month… December’s sales pace was revised higher to 885,000 units from the previously reported 842,000 units… New home sales surged 19.3% on a year-on-year basis in January.”
February 25 – Associated Press (Paul Wiseman): “Orders to U.S. factories for big-ticket goods shot up 3.4% in January, pulled up by surge in orders for civilian aircraft. A category that tracks business investment posted a more modest gain… Orders for goods meant to last at least three years have now risen nine straight months…”
February 25 – Bloomberg (Jesse Hamilton): “The Federal Reserve and other bank regulators are flashing a new warning sign for the U.S. economy: Businesses ravaged by Covid-19 are sitting on $1 trillion of debt and a high percentage of it is at risk of going bust. Watchdogs flagged 29.2% of complex corporate lending as troubled in 2020, up from 13.5% in 2019, according to a report released Thursday by the Fed and other agencies. Real estate, entertainment, transportation, oil and gas, and retail were cited as particular problem areas. A ‘disproportionate share’ of the riskiest loans were held by nonbanks, such as investment funds that engage in leveraged lending, insurers and pension funds, the regulators added.”
February 24 – Financial Times (Gregory Meyer and Justin Jacobs): “The Texas electricity crisis last week has morphed into a credit crisis in the state’s wholesale power market, where participants have begun defaulting on a portion of the $50bn in energy purchases made during record cold weather, according to… the grid operator. The Electric Reliability Council of Texas (Ercot)… said… it had tapped emergency funding to cover failed payments.”
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