YESTERDAY WAS AN EXTREME

Equities and oil advanced and Treasuries plunged as the odds of a trade deal continue to rise.  Bloomberg writes that the 11 basis points rise in the 10-year is a “three sigma” event, which means such is rarity.  95% of times events fall within two sigmas (2 standard deviations).

Commenting on the bond market, the 30 year is now back at early August yields.  The ten year French and Belgian bond yields climbed above 0% for the first time in months while the German equivalent yields surged 10 basis points.

If the French or Belgian 10 year rises to a 1% yield, the total annual return would be about -45% from its all-time low yield.  Wow!  That is total carnage for a proverbial “risk free” sovereign debt investment.

Many times I had commented about the mania in the sovereign debt market where two months ago over $17 trillion had negative yields….a six sigma event or one that is highly improbable to ever occur.   The sovereign debt market had discounted a sharp recession, a view that I do/did not share.  Today the amount is around $12.5 trillion according to Bloomberg.

The question at hand is how much this trade will unwind and what will be the possible implications.

Perhaps the more immediate question is when will rising yields begin to impact equity prices?  In about five weeks the 10 year has increased in yield about 45 basis points or about 32%.  The last two times yields rose by this amount, equity volatility increased.

Changing topics, activity is expected to wane throughout the day as all but the equity markets are closed Monday for Veterans Day.

Please take the time to remember all those who gave the ultimate sacrifice defending our freedom, a freedom today that is under attack from so many directions.

Last night the foreign markets were down.   London was down 0.26%,  Paris down 0.18%  and Frankfurt down 0.20%.  China was down 0.49%,  Japan up 0.26%  and Hang Sang down 0.70%.

The Dow should open nominally lower.  The 10-year is off 3/32 to yield 1.93%.

 

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.