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%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. 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. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.