December 1, 2023
Short-term rates will fall and long-term rates will rise.


The Market Lately/Bond Vigilantes

In September/October there was nowhere to hide except in the short-term T-bill or currency markets. The S&P was down 4.7% in September. Bonds fell about 2.5%. Small Cap and Tech fell in line with the S&P. Rising interest rates hit income stocks like REITs and utilities even more. Everyone is back in November. Note, September is historically the worst performing month for the stock market and November is the best. The fourth quarter is historically strong, especially starting in November. However what we saw in September was not sustainable. Long-term bond yields rose almost daily with the coincident decline in all of the above equities (falling bond prices). Shown below is a chart of the Long Bond ETF (NASDAQ:TLT) From the Extreme (aka the Bond vigilantes are back!). China, Brazil, Saudi Arabia and Japan have stopped buying US bonds and have been net sellers. Link Japan, China reduced US Treasury holdings as currencies hit new lows. There are a lot of new releases. The Fed’s sharp comments also have an impact. A significant rise in long-term bond yields acts like an anchor for stocks.

Long Bond ETF TLT 2 Year Chart (Yahoo Finance)

2-Year to 10-Year Yield Spread (Federal Reserve FRED)

History of the Fed Funds Rate Since 1955 (Federal Reserve FRED)

2-Year Treasury Yield Chart (Since 1975) (Federal Reserve FRED)

5-Year Treasury Bond Yield 5-Year Treasury Bond Yield Chart (Since 1955) Hart (Since 1955) (Federal Reserve FRED)

10-Year Bond Yield Chart (Since 1955) (Federal Reserve FRED)


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