Hi Ho Interest Rates!
The global bond market is off to a pretty bad start this week, especially for US Treasuries. Interest rates on the 10-year shot up 3 basis points to 2.98%. Interest on the National Debt of $21.15 trillion just went up about $6 billion annually, give or take a few hundred million dollars. Rates on the 10-year are now within 2 basis points of the psychologically important 3% mark. Leading the pack is the 2-year, which is up 129 basis points over the last year. Long end bonds are laggards, with the 30-year up only basis points for the year.
Treasuries were not the only casualty as the week began for bonds. Rates on 10-year German Bunds jumped an even higher 4 basis points, as did Britain’s. Since Germany is actively paying the debts of many bankrupt Eurozone states on bailout programs and other aptly named financial stability mechanisms, higher interest rates in Germany could set off a domino effect in the states that Germany has on life support.
The Establishment Financiers Are Getting Twitchy
The annual Spring meeting of the IMF and the World Bank in wrapped up on Sunday, and Mohamed El-Erian isn’t happy. The chief economic advisor at PIMCO pointed out in a weekend column at Bloomberg that an IMF analysis has showed that total indebtedness is now higher than before the global financial crisis.
Nevertheless, he continued, the meeting “gives markets nothing new to grab onto, and will reinforce the ‘data dependency’ mindset that has dominated key central banks. With that, we should expect continued market volatility…” but ended off his column optimistically.
As to where it leaves my own probability assessment: Nothing came out of the spring meeting that alters my estimation that there’s a 65-35 likelihood of orderly transitions in economics, growth policy and markets.
In other words, El-Erian puts the chances of something disorderly coming at 35%.
Do Your FANGS Need Fillings?
Two of the FANG stocks are reporting earnings this week, Amazon.com (NASDAQ:AMZN) on Thursday and Alphabet Inc. (NASDAQ:GOOG) today after market close. Since the health of the broader market indexes is heavily dependent on these stocks, it is the market’s reaction to the news that will be more telling than the news itself. A selloff on an earnings beat could indicate that investors are trying to offload positions on a high note in anticipation of turbulence ahead. A bid on miss could indicate the opposite.
Where’s a North Korea ETF When You Need One?
North Korean Leader Kim Jong Un took another step towards opening up his country to the world over the weekend in an announcement that he would suspend nuclear missile tests and close a nuclear test site in preparations for talks with South Korea. Kim remarked that he would like an optimum international environment to build the North Korean economy, which currently runs primarily on coal briquettes, North Korea’s largest single export, followed by non-knit clothing. It shouldn’t be too hard to move up from there to a gas grill and maybe some knitting.