Fantastic newsletter Geo, so glad I found this. I value this newsletter greatly because of your background as a former trader at a bank.
Long bonds going up this fast are going to start having a major effect on the economy and asset prices if they stay here. The world economy was levered on zero rates from 2009-mid 2022. Residential real estate will slow to a crawl with 8%+ mtg rates (this has knock on affects for jobs in industries around RE). CRE is going to get demolished. CRE properties were valued & purchased at 3-4% rates for 13-14 years. Now they have to deal with 8% rates. Cap rates will rise, prices will fall dramatically. Credit cards, auto loans, business lines of credit, etc... ALL much higher cost.
My question is this.... higher long bonds are going to hit the economy soon & jobs, which will hit economic growth and spending, which will likely hit inflation. Can long bonds still stay high despite lower economic growth due to this avalanche of supply of UST? Because I think there is no question these high long bond yields are going to be an absolute wrecking ball though the world economy.
Up until recently its just been the short end of the curve that was high, this long bond move is very recent. So it has not had enough time to be the earthquake yet that it will be soon on the economy.
Thanks for the kind words, I'm glad this blog is adding value to you.
I agree that long bond yields will be a wrecking ball, and that's why I'm bearish equities. I'm not short at the moment, but I don't like being long and will look for opportunities to short.
However at the moment, long bond yields touching 5% on the 30y isn't breaking the economy yet, because a lot of the pain has already been taken with Fed Funds going up to 5.4%. I think long bond yields will continue to rise UNTIL something breaks. With equities ripping higher on a day like today, it doesn't feel like anything is breaking anytime soon, which is why I see more upside for yields.
Fantastic newsletter Geo, so glad I found this. I value this newsletter greatly because of your background as a former trader at a bank.
Long bonds going up this fast are going to start having a major effect on the economy and asset prices if they stay here. The world economy was levered on zero rates from 2009-mid 2022. Residential real estate will slow to a crawl with 8%+ mtg rates (this has knock on affects for jobs in industries around RE). CRE is going to get demolished. CRE properties were valued & purchased at 3-4% rates for 13-14 years. Now they have to deal with 8% rates. Cap rates will rise, prices will fall dramatically. Credit cards, auto loans, business lines of credit, etc... ALL much higher cost.
My question is this.... higher long bonds are going to hit the economy soon & jobs, which will hit economic growth and spending, which will likely hit inflation. Can long bonds still stay high despite lower economic growth due to this avalanche of supply of UST? Because I think there is no question these high long bond yields are going to be an absolute wrecking ball though the world economy.
Up until recently its just been the short end of the curve that was high, this long bond move is very recent. So it has not had enough time to be the earthquake yet that it will be soon on the economy.
Thanks for the kind words, I'm glad this blog is adding value to you.
I agree that long bond yields will be a wrecking ball, and that's why I'm bearish equities. I'm not short at the moment, but I don't like being long and will look for opportunities to short.
However at the moment, long bond yields touching 5% on the 30y isn't breaking the economy yet, because a lot of the pain has already been taken with Fed Funds going up to 5.4%. I think long bond yields will continue to rise UNTIL something breaks. With equities ripping higher on a day like today, it doesn't feel like anything is breaking anytime soon, which is why I see more upside for yields.
all roads lead to QE eventually. There is no other way out.
You can only trade "time horizon".