08 Nov 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%.