Watch the Bond Market Closely: Critical Info for Investors

by James DiGeorgia | 02/09/2021 2:28 PM
Watch the Bond Market Closely: Critical Info for Investors

A number of factors that have led to the short selloff in treasuries remain at hand after the tail off following the big move at the beginning of the 10-year treasury.  Key among them is the rollout of the vaccines, and the fiscal stimulus put into place. Household savings and easy monetary policies are fueling the rise in consumer spending power.


Scott Peng, Founder, Chief Executive Officer & Chief Information Officer at Advocate Capital Management, highlights that a perfect storm is being let loose. The projections in his model show that the 10-year Treasury yield TMUBMUSD10Y, 1.168% will jump 162 basis points this year and a new 160 basis points for the following year. This is more than the market projections of about 17 basis points of gains in either of the following two years. The 10-year generated 1.12% in the initial Wednesday stroke.

Peng cites that his model excludes extra fiscal stimulus from the Biden administration, projected for a $1.9 trillion coronavirus aid coupled with further spending on infrastructure. Crucial to his outlook of a surge in interest rates is the past correlation concerning Nominal gross domestic product growth with short and long-term interest rates in the United States, United Kingdom, Germany, and Japan. Lasting regression shows a 50% proportion between GDP growth and the Treasury Yield ever since 1960, though recent history points out that the ratio may have reduced to 27%.

The table below shows the quantitative aspects of the pandemic, economic, and stimulus programs.

Alt: (Quantitative Aspect of a Pandemic Chart)

The lower inter-relation level would propose the vaccine rollout, stifled spending ability, increase in government debt, and monetary stimulus would push earnings higher.  Such a rise could raise anxiety at the Federal Reserve. Peng determines that the Fed would have to increase the amount of quantitative easing four times to counterbalance the estimated 2021 increase in rates. He says that a $300 billion every month quantitative easing would surpass the 2020 quantitative easing and not likely to be viable for an extended period, specifically for an economy experiencing sound recovery.

Peng did not spread out his study to stocks, but the effects would be forthright. A shoot in yields would make relative estimations attractive- however, it could cause circumstances for value stocks to flourish following a decade of poor performance.

The Noise on Wall Street

GameStop GME (NSYE), +19.20% shares shot by 2% in premarket trade following a tumble of 60% to $90 on Tuesday. The small squeeze caused by the Reddit WallStreetBets forum consumers had pushed the stock up to $483 last week. Cinema operator AMC Entertainment (AMC -NYSE),-3.67%, which had plunged 41% on Tuesday, as well went up to 2%.

Amazon (AMZN-NASDAQ), + 0.63% stated projections-crushing fourth-quarter incomes and proceeds along with the update that Jeff Bezos, within the year, would step down as chief executive for the executive chairmanship, aiming at different products together with prompt initiatives. Andy Jassy, who is currently the head of the fast-growing cloud division, has been named the entire company’s CEO.

Alphabet (GOOGL-NASDAQ), +1.71%,  Alphabet Inc. (GOOG- NASDAQ),, + 1.73% soared 7% in premarket trade Google’s initial firm effortlessly surpassed fourth- quarter yields projections, receiving a boost from search revenues and its prospering cloud business. There is a range of revenues containing payment service PayPal PYPL, -0.37%, and virtual auction service eBay EBAY, +1.82% following the end of the trade.

For the side of the corona, pharmaceutical GlaxoSmithKline (GSK-NYSE), -0.34% have to pay $150 million to CureVac CVAC, +9.49% towards developing the modernized vaccines aiming at several variants. Glaxo will also assist in producing about 100 million doses of CureVac’s first-generation inoculation, an enhancement for Europe that has been sluggish in rolling out vaccines. Independently, initial exploration discovers the AstraZeneca (AZN-NYSE), -1.25% - Oxford University vaccine offers defense for three months before the second dosage administration. New Corona cases in the United States fell to 115,619 on Tuesday from the highest case of 243,996 in mid-January, as shown by the COVID-19 tracing project.

The economics schedule involves the ADP projections of non-governmental sector employees that depicted a 174,000 increase and the Institute of Supply Management’s Services Index. An analysis of China’s services sector showed below projections.

The Markets

The Nasdaq-100 NQ00, +0.04% deal steered an improvement in stock futures ES00, +0.11% following the Amazon and Alphabet results. The dollar DXY, -0.57%, was stable. Italian stocks I945, +0.80% rose on prospects that former European Central Bank President Mario Draghi would be the country’s succeeding prime minister.

The Chart

Graph showing commodities to equity ratio

Alt : (Commodities to Equities Ratio Chart)

In a letter to investors, the hedge fund firm Crescat Capital stated that the platform is ready for a major investor change due to overestimated mega-cap growth funds and fixed income securities and move to underestimated materials, energy, and other commodities.

 The letter stated that if it focused on only one plan in the following three to five years, it had to be the one regarding the commodities- to equities ratio. The letter highlighted that the chance for purchasing gold stocks and selling overestimated large-cap growth stocks appears like 1972. Between 1973 and 1974, the S&P 500 SPX, +0.39%, weakened BY 50% as gold stocks rose by five times.


                      Harry Dent: 40% Stock Market Crash Coming By April 2021



[Strategic Investment: The Post WWII World Order is About to Collapse]


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