Treasury yields surged to the highest in a year over economic and COVID optimism.  A Bloomberg headline read “US COVID cases are Plunging.”  The article commented more than 27.6 million Americans or 11.8% of the population have tested positive.  CDC statistical analysis of the data is suggesting that over 140 million Americans have been infected.  It is thought with the vaccines and warmer weather expected in the intermediate future the worst is over.

And then there is fiscal spending that is now amounting to more than 25% of GDP.  Real yields are now around historical highs and such correlates to strong economic growth.  Ten-year break-even rates are at the highest level since 2014.  The five-year break-even rate at 2.5% is the greatest since 2011.

Little attention has been given to the worst start in the fixed income market since 2013. At some juncture this rise in rates will impact the markets.

Blomberg opined yesterday that a 1.30% 10-year may be a transition point for algorithmic traders.  Was this a reason for the reversal yesterday in the NASDAQ?  This index was posting about a 0.5% advance but selling commenced once the 10-year broached a 1.29% yield.  The NASDAQ ended about 0.35% lower.

Commodity and financial shares however ended higher.

Speaking of commodities, oil closed over $60 barrel as a deepening energy crisis is crippling the US petroleum industry.   This crippling is the result of frigid winter weather amplified by Presidential and OPEC policy.  The International Energy Agency is suggesting that $4 gas is a possibility in the intermediate future.

What will happen today?

Last night the foreign markets were down.  London was down 01.8%, Paris down 0.01% and Frankfurt down 0.54%.  China was up 1.75%,  Japan down 0.58% and Hang Seng up 1.10%.

The Dow should open flat.  The 10-year is unchanged at a 1.29% yield.  Several bold bracket firms including Citicorp, JP Morgan and Charles Schwab are now wondering how high bond yields can climb before impacting equities.  Oil is about 1.5% higher amid a “deepening energy crisis, partially the result of environmental policies, that has greatly impacted output” according to Bloomberg.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.