10yr and 5yr inflation expectations - breakeven10yr and 5yr inflation expectations - breakeven ... FED 2 % target rate ... means at 2 % they pause ...
T10YIE trade ideas
real yields seem to be ready for a turnaroundSilver could be pushed up here along with real yields which seem like they have dropped too much too fast
will real yields rise now and bring silver along?real yields have been falling very quickly and look oversold. Could it be that it will rise now and bring silver up as well?
THE RELATIVE INFLUENCES OF THE VARIOUS ECONOMIC COMPONENTS ON SPwhich are the correlations of note for BTC --it turns out BTC is most correlated with the 10y - 2 year yield curve
Addressing the pace of inflation growthThe global economy is now embroiled in the most severe inflation shock since the 1970s. Inflation is showing a stubborn persistence evident from the recent readings on inflation globally. In March, the US headline Consumer Prices Index (CPI) hit 8.5% annually and the Producer Price Index (PPI) rose to 11.2%. In the euro-area, headline CPI inflation surged to 7.5% and soaring gas prices pushed PPI beyond 31%. Within Emerging Markets, CPI inflation climbed to 11.3% in Brazil, 9.4% in Chile and 7.5% in Mexico. Even across emerging Asian economies inflationary pressures are cascading with great force, particularly among the commodity importers, with inflation reaching 5.7% in Thailand and 3.9% in the Philippines.
Peak inflation or not?
Clearly the Russia-Ukraine war continues to weigh heavily on the inflation outlook. Added to that, the surge in COVID cases in China and subsequent lockdowns have resulted in disruptions to production and shortages in supply chains which is likely to have a sustained upward pressure on prices of goods. Contrary to popular opinion, we don’t think inflation is likely to peak soon. Given the high PPI print in the US, we expect CPI to go even higher before it starts to moderate. In fact, the pace at which inflation moderates will be more significant than when inflation peaks. The war in Ukraine has unleashed a plethora of supply-chain pressures beyond energy. Russia and Ukraine are the largest exporters of wheat, processed nickel and fertilizers. As the conflict persists, we expect pressures on supply chains to mount. For developing countries, where the share of food in CPIs is much larger, and shipment of key agricultural products such as wheat, corn and fertilisers are under stress, the situation could be more severe. The role of Central Banks in addressing the near-term challenge of placating inflation has now taken centre stage.
Central Bank’s hawkish pivot
With the Federal Reserve (Fed) signaling a hawkish tilt to monetary policy, US interest rates have not only risen rather noticeably to the upside, but further increases are expected. Fed rate hikes are expected to include an additional increase of 200 basis points (bps) this year, with the potential for 50bps moves at the upcoming May and June Federal Open Market Committee (FOMC) meetings. In addition to rate hikes, the Fed has also provided forward guidance regarding balance sheet drawdown, or quantitative tightening (QT). Recent comments from Chairman Powell & Vice Chair nominee Brainard suggest QT could occur “at a rapid pace”. The combination of Fed rate hikes and QT is expected to put further upward pressure on Treasury yields all along the yield curve. While central banks in China and Japan intend to keep monetary policy fairly accommodative, the Fed’s hawkish stance is also having an impact on Chinese and Japanese central banks. The People’s Bank of China (PBOC) is holding off on broad-based interest rate cuts and is instead using window guidance and other measures to ensure banks continue to lend to key parts of the economy. In Japan, the central bank was forced to ramp up its bond purchases this week as investors continue to test its ability to keep yields low. In Europe, policy makers are pressing ahead with unwinding monetary stimulus this year. Money markets are pricing in more than a 50% chance of a 25bps rate hike by July, with 25bps of tightening certain in September and December.
Opportunities in Fixed Income
With the US money and bond markets expecting an aggressive tightening cycle from the Fed, there have been little, if any, options for fixed income investors. Traditional rate-hedging solutions such as Treasury inflation-protected securities (TIPS) have produced negative returns as real yields have skyrocketed by 100bps while corporate-based Floating Rate Notes (FRNs) and ultra-short-duration vehicles have also produced negative results since the start of the year. In contrast, Treasury FRNs are one of the only few options where investors have seen positive results as this rate-hedging tool resets every week with the US Treasury (UST) 3-month T-bill auction (1 week duration). Due to this weekly reset mechanism, investors can essentially ‘float with the Fed’ as the UST 3-month T bill will reflect Fed rate hikes in a timely fashion.
High dividend & value factor continue to outperform within equities
The dividend yield factor is synonymous with an investment strategy that gains exposure to companies that appear undervalued and have demonstrated stable and increasing dividends. The reset in real rates in 2022 has been swift. With expectations for rates to continue to rise, investors are scrambling for short-duration assets. High dividend strategies currently have sector exposures that align with a rising rate view—including overweights to energy, materials and financials that are more cyclical sectors. The high dividend factor not only captures the value factor but in a manner that has greater exposure to companies with higher profitability levels. Currently 50% of the companies in the S&P500 Index have a dividend yield above the level of the US 10-year Treasury, and high dividend strategies would notably all be above the 10-year US Treasury. In a time when profitability matters and unprofitable technology stocks are being squeezed by rising rates, high dividend stocks are performing like shorter-duration assets.
While central banks get to grips with the pace of inflation, floating rate notes, high dividend and value factors could benefit in a rising inflation and interest rate environment, potentially offering some protection from some of the fundamental shifts we have seen since the onset of the recent geopolitical crisis.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
10Y Breakeven v BTCThese 2 charts have been following eachother since Aug 2020 - this chart is the answer to the question: is bitcoin an inflation haven?
Right now yes it is, and even at these price levels - obv too early too tell but this is encouraging sign
The great INFLATION debateChart: action reaction chart off major pivots
Here we are looking at breakeven inflation and inflation protected securities
People buying inflation hedges (including gold) are getting rekt
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I used to believe in hyperinflation and a dollar reset too
But this isn't going to happen (yet)
For nigh on 40 years, economic growth per capita (nominal AND inflation-adjusted real) has been in a downtrend.
This coincides with the 40 year bull market in long term government bonds.
For around a quarter-century: the GDP generated /dollar of the money supply has fallen; and this demise is accelerating.
The velocity of money ( M2V ) has crashed post-pandemic, and it is at a 100 year low; this is not consistent with persistent inflation /hyperinflation.
The money multiplier is falling because banks can't lend productively, and are parking cash at the Federal Reserve .
MRDP (marginal revenue product of the debt) is at an all-time low: currently around $0.25 of GDP per dollar of debt.
The dollar itself stays strong because the rest of the world is even more indebted and less productive (with lower MRDPs).
Demographics and Debt will both continue to subsume growth, with the EU especially affected by demographics.
Markets are in a bubble because we are at peak debt and peak growth.
As soon as reality bites: equities will be the first to suffer. The dollar will just get stronger mid term.
G.R.I. Dec 2021
With thanks to Lacy Hunt (Hoisington) and Eric Basmajian (EPB Research) for all their work on the above
NOTE: the views expressed above are my own, AND MUST NOT BE CONSTRUED AS ANY FORM OF ADVICE
BREAKEVEN INFLATION downtrend; goldBreakeven inflation is dropping,inflation-protected securities are underperforming
It appears the system is creaking
Gold will follow breakeven inflation
NOT TRADING ADVICE
Are Treasury Yields Bottoming?It appears that 10's are coiling up with two potential trendlines to watch (converging orange lines on the chart). Since failing just under 1.70 three weeks ago the latest trend has been down despite a more hawkish Fed and rising 2-year yields. This has led to dramatic flattening across the curve before the latest FOMC meeting. Ahead of Wednesday's announcement, US breakeven rates had fallen to 2 month lows, suggesting since the final stimulus plan was signed in late November that expectations for future inflation could finally be in the process of being addressed. Even after the Fed's meeting, breakevens still seemingly believe that Powell & company are about to embark on a tightening cycle next year with 3 hikes being currently priced by the market for 2022. Although, breakevens still look to go lower, the latest price-action suggests they could be on the verge of starting to stabilize. And 10's too may be attempting to bottom-out as well. For that to happen, however, 10's have to hold the 1.39/1.40 area before turning attention towards the downward sloping trendline ahead of the 20-day moving average. Moreover, with the latest stabilization in the persistent curve flattening trend could also be suggesting more stable rates at the long end of the curve. The one factor to watch that could delay a possible move-up in US yields is covid pandemic, which has unleashed severe year-end profit-taking in the highest performing stocks and overall burdened equity markets around the world.
Breakeven Vs Average Inflationwww.bondeconomics.com
Break-even inflation is the difference between the nominal yield on a fixed-rate investment and the real yield (fixed spread) on an inflation-linked investment of similar maturity and credit quality. If inflation averages more than the break-even, the inflation-linked investment will outperform the fixed-rate. Conversely, if inflation averages below the break-even, the fixed-rate will outperform the inflation-linked.
10-year breakeven inflation rate = (10-year nominal Treasury yield) - (10-year TIPS yield).
It is called the breakeven inflation rate because you would (roughly) receive the same total return on TIPS as you would a nominal Treasury if CPI inflation averages that level over the next 10 years. Note that this estimate break-even rate will be slightly off for bonds trading away from par, and does not take into account things like the difference in financing costs. The true economic breakeven will be even further from this spread for shorter maturity bonds, for reasons I discuss further below.
www.inflation-linked.com
Inflation breakeven is transitioning from parabolic to vertical Inflation breakeven plot is becoming concerning to me. What are your thoughts? Ignore the support/resistance levels - those are not applicable on economic indicators.
Growth expectations falling as real yields are dropping?With inspiration from the Financial Times:
www.ft.com
10-year inflation expectations(T10YIE) are stable while the US 10 yield (US10Y) and 10-year TIPS (treasury inflation-indexed security, DFII) are falling. This means that real rates are dropping as they are calculated as the nominal rate (US10Y) minus inflation expectations(T10YIE).
The Financial Times argue though that as Gold is strongly inversely correlated to 10-year TIPS it should rise to 2100 from 1800 where it is now and that real yields therefore are somewhat imaginary.
PANIC Ahead - August into OctoberThere is far more to "markets" than Charts.
Risks appear as IF unknown when all eyes are focused
upon Charts - this has been demonstrated time and again.
Yet it remains mostly ignored.
There are immense Risks to the Equity Complex.
Today is a Prime Example of Wall Street getting its fills for
the upcoming correction - it will be swift, violent and decidedly
nasty.
Buy the Dip is an almost religious, cult like adherence.
This too shall pass.
We anticipate a move to 200 EMAs happening with extreme
swiftness.
Timing it will be folly, it is best to begin positioning for it
as Geo Political Risk has not been this high in years.
Good Luck and may you prosper immensely in this next decline.
Federal Reserve Objectives - Price Stability & Full Employment2% was exceeded by over 25%.
Running Hot or Not.
How long will the Bond Market cooperate.
