{"id":68240,"date":"2023-10-03T11:57:42","date_gmt":"2023-10-03T15:57:42","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-wild-bunch-have-taken-control-of-the-bond-market-heres-where-they-could-wreak-havoc-next\/"},"modified":"2023-10-03T11:57:44","modified_gmt":"2023-10-03T15:57:44","slug":"the-wild-bunch-have-taken-control-of-the-bond-market-heres-where-they-could-wreak-havoc-next","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=68240","title":{"rendered":"The \u2018wild bunch\u2019 have taken control of the bond market. Here\u2019s where they could wreak havoc next."},"content":{"rendered":"
The bond market is front and center for investors these days, with JPMorgan warning of a \u201cfinancial accident\u201d if yields keep going up, driving prices lower. <\/p>\n
\u201cThe damage in bonds has been more severe and more sustained than for equities, and you can\u2019t help wondering where the real damage is. You can\u2019t have this much value destruction in bonds without there being some stress somewhere. However, it\u2019s near impossible to work out where exactly it might come to the surface and on the heels of the worst month for bonds of the year,\u201d noted a team of Deutsche Bank strategists led by Jim Reid on Monday. <\/p>\n
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Our call of the day<\/strong> from Ed Yardeni, president of Yardeni Research, offers an idea on the next market to fall. That\u2019s as he raises the alarm over what he calls the \u201cWild Bunch,\u201d or bond vigilantes, who have \u201cseized control of the Treasury market.\u201d His hope is that cooling inflation will calm things down.<\/p>\n
In a note to clients, Yardeni ticks off evidence of those bond vigilantes in action. For starters, the fact that the 10-year Treasury yield \n BX:TMUBMUSD10Y \n rose on recent weak data instead of declining suggests a \u201cshift in bond investors\u2019 focused from what monetary policy makers may do to rising alarm about what fiscal policy makers are doing.\u201d <\/p>\n
\u201cThe worry is that the escalating federal budget deficit will create more supply of bonds than demand can meet, requiring higher yields to clear the market; that worry has been the bond vigilantes\u2019 entrance cue,\u201d he says. <\/p>\n
Yardeni also sees the vigilantes in action when it comes to yield curve disinversion lately \u2014 an\u00a0inverted yield curve occurs when interest paid on short-term debt is more than that of longer term bonds. <\/p>\n
\u201cPerversely, now that the Fed seems to be on the verge of terminating its rate hiking, bond investors might have concluded that short-term rates aren\u2019t high enough to cause a financial crisis, credit crunch, and a recession,\u201d he said. <\/p>\n
And here\u2019s where he\u2019s on guard for trouble, as he notes that the wild bunch have oddly left the high-yield corporate debt market \u2014 flat and stable \u2013alone: <\/p>\n
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\u201cCould it be that some of them view the government\u2019s securities as riskier than high-yield corporates? The result of their rampage in the Treasury market suggests as much,\u201d he said, adding that they are on alert for signs of rampage spreading to high yields.<\/p>\n
And for sure, the wild bunch have DC policy makers in their sights, after causing the Treasury market to fully reverse a drop in the 10-year yield from the global financial crisis through the pandemic over the past three years, he notes.<\/p>\n
Their message is clear, says Yardeni: \u201cTake meaningful actions to reduce the federal deficit now and in the future or we will push the bond yield up to whatever level it takes to get you to do so!\u201d<\/p>\n
Read: <\/strong>How Treasury market upheaval is rippling through global markets in 4 charts<\/p>\n
The markets<\/h2>\n
Stocks are under pressure, with the yield on the 10-year Treasury note \n BX:TMUBMUSD10Y \n up 4 basis points and that of the 30-year \n BX:TMUBMUSD30Y \n up 9 basis points. The dollar \n DXY \n is up, notably against the Russian ruble \n USDRUB, \n +1.01%<\/bg-quote>,<\/span> \n while gold \n GC00, \n -0.43%<\/bg-quote>,<\/span> \n silver \n SI00, \n -0.17%<\/bg-quote> \n and oil \n CL.1, \n +1.33%<\/bg-quote> \n are under pressure. <\/p>\n
Read:<\/strong> Gold appears headed for a \u2018death cross\u2019 just 5 months after teasing record highs<\/p>\n
For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by<\/strong> Investor\u2019s Business Daily.<\/p>\n
The buzz<\/h2>\n
POINT Biopharma \n PNT, \n +85.27%<\/bg-quote> \n stock is up 84% after Eli Lilly announced a $1.4 billion deal for the cancer treatment company, paying $12.50 a share.\u00a0<\/p>\n
SmileDirectClub shares \n SDC, \n -43.14%<\/bg-quote> \n are down another 12% following a bankruptcy filing, as a buyer for the teeth straightening group\u00a0could be hard to find.<\/p>\n
WeWork stock \n WE, \n -22.74%<\/bg-quote> \n is down 5% after the office work space provider said it would\u00a0miss interest payments\u00a0to continue talks with its lenders. <\/p>\n
U.S.-listed Chinese stocks are down after property developers (except Evergrande, which rallied) pulled the Hang Seng \n HK:HSI \n 2.6% lower. Alibaba \n BABA, \n -2.37%<\/bg-quote>,<\/span> \n JD.com \n JD, \n -2.27%<\/bg-quote>,<\/span> \n XPeng \n XPEV, \n -3.56%<\/bg-quote> \n and Li Auto \n LI, \n -1.11%<\/bg-quote> \n are off 2% or more. <\/p>\n
Tesla \n TSLA, \n -1.57%<\/bg-quote> \n has launched a less expensive, rear-wheel-drive version of its bestselling Model Y crossover SUV in the U.S. <\/p>\n
Cleveland Fed President Loretta Mester said late Monday that the central bank may need to hike rates once more this year and then keep them high \u201cfor some time.\u201d <\/p>\n
Elsewhere a speech is due from Atlanta Fed President Raphael Bostic at 8 a.m., followed by job openings at 10 a.m.<\/p>\n
Best of the web<\/h2>\n
Why home insurance prices in the U.S. went up 21% between 2022 and 2023.<\/p>\n
Meta plans to charge $14 a month for ad-free Instagram or Facebook.<\/p>\n
Burger King is still open in Russia despite a pledge to exit.<\/p>\n
The chart<\/h2>\n
Here\u2019s a chart from the portfolio manager of Crescat Capital, Otavio Costa, whose chart sums up possible brewing trouble for tech companies:<\/p>\n
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The tickers<\/h2>\n
These were the top-searched tickers on MarketWatch as of 6 a.m.:<\/p>\n
\n
\n
\n Ticker<\/p>\n<\/td>\n
\n Security name<\/p>\n<\/td>\n<\/tr>\n
\n
\n TSLA, \n -1.57%<\/bg-quote>\n <\/td>\n
\n Tesla<\/p>\n<\/td>\n<\/tr>\n
\n
\n NVDA, \n -2.54%<\/bg-quote>\n <\/td>\n
\n Nvidia<\/p>\n<\/td>\n<\/tr>\n
\n
\n AMC, \n -3.31%<\/bg-quote>\n <\/td>\n
\n AMC Entertainment<\/p>\n<\/td>\n<\/tr>\n
\n
\n GME, \n -4.68%<\/bg-quote>\n <\/td>\n
\n GameStop<\/p>\n<\/td>\n<\/tr>\n
\n
\n NIO, \n -1.42%<\/bg-quote>\n <\/td>\n
\n NIO<\/p>\n<\/td>\n<\/tr>\n
\n
\n AAPL, \n -1.27%<\/bg-quote>\n <\/td>\n
\n Apple<\/p>\n<\/td>\n<\/tr>\n
\n
\n TTOO, \n -6.94%<\/bg-quote>\n <\/td>\n
\n T2 Biosystems<\/p>\n<\/td>\n<\/tr>\n
\n
\n AMZN, \n -3.49%<\/bg-quote>\n <\/td>\n
\n Amazon.com<\/p>\n<\/td>\n<\/tr>\n
\n
\n MULN, \n +2.22%<\/bg-quote>\n <\/td>\n
\n Mullen Automotive<\/p>\n<\/td>\n<\/tr>\n
\n
\n NKLA, \n +1.34%<\/bg-quote>\n <\/td>\n
\n Nikola<\/p>\n<\/td>\n<\/tr>\n<\/table>\n
Random reads<\/h2>\n
On the toilet? Stay off your phone. <\/p>\n
NASA has a serious plan to build houses on the moon.<\/p>\n
In bedbug-plagued Paris, hotels will cost 300% more for the 2024 Olympics <\/p>\n
Need to Know starts early and is updated until the opening bell, but\u00a0sign up here\u00a0to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.<\/strong><\/p>\n
Listen to the\u00a0Best New Ideas in Money podcast\u00a0with MarketWatch financial columnist James Rogers and economist Stephanie Kelton.<\/strong><\/p>\n<\/p><\/div>\n