Author: George Yacik

Will The 10-year Treasury Crack 3% This Week?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates - 10-year Treasury


In case you hadn’t noticed, the yield on the benchmark 10-year U.S. Treasury note is this close to hitting the psychologically important 3% level. Is this the sign of still higher rates to come, or another buying opportunity, meaning rates are going to fall back again?

While most of the market seemed not to notice, seeing as it was fixated on corporate earnings and what’s going on in the tech sector, the yield on the T-note surged by 14 basis points last week to close Friday at 2.96%. That’s up nearly 25 bps since the beginning of this month and 55 bps year to date. It’s also the highest level since the beginning of 2014.

If you recall, we got close to hitting 3% two months ago, when the yield spiked to 2.95% on February 21, surging 25 bps in just two weeks before retreating quickly back to about 2.80% by the end of the month. The note then traded in a fairly narrow band between 2.80% and 2.90% over the next month before dropping sharply to 2.73% at the end of March and early April, after which it surged to Friday’s level.

Are we going to repeat the pattern of late February, meaning that this represents a buying opportuning in the Treasury market, or is this the signal that we are going to finally blow past 3% following February’s false start? Continue reading "Will The 10-year Treasury Crack 3% This Week?" →

Will China Nuke Its Own Treasury Portfolio?

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates - China U.S. government debt


If you’re an investor in U.S. Treasury bonds, should you be worried that China may go nuclear? (No, not that kind of nuclear, the kind in the headline of a recent Reuters article about China’s supposed “nuclear option” to stop buying, if not outright sell, its huge holdings of American government bonds).

According to that report – speculation, really – China may consider retaliating against President Trump’s tough tariff talk by pulling its indirect support of the U.S. government, namely its holdings of about $1.2 trillion of Treasury securities. That makes it the largest foreign holder of that debt. Japan is a close second with $1.1 trillion, while Ireland (Ireland?) is a distant third with $328 billion. Altogether, $6.2 trillion of the U.S. government’s total debt of $20 trillion is held by foreign entities or about 31%. That would put China’s share at about 18% of the total foreign-held amount and less than 6% of the grand total.

In case you were wondering, the Federal Reserve holds about $4.5 trillion of the national debt or about four times what China owns. The Social Security Administration owns about $2.8 trillion.

So, is this something we really need to be worried about, even under the remote possibility that China would actually, in financial terms, cut off its nose to spite its face? Continue reading "Will China Nuke Its Own Treasury Portfolio?" →

The Powell Era Begins

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates - Powell


New Federal Reserve chair Jerome Powell had all kinds of excuses not to raise interest rates at last week’s FOMC meeting:

  • The yield on the 10-year Treasury note was trading close to its highest point in more than four years and dangerously close to breaking the 3% barrier.
  • Stocks have fallen well off their highs, and investors are nervous about the prospects of a potential trade war between the U.S. and its biggest trading partners, particularly China and Canada.
  • The threat of that trade war has influenced some economic forecasters to lower their GDP growth forecasts for the first quarter to below 2%, which would be the lowest level since President Trump took office.
  • The turmoil in the Trump Administration, with cabinet secretaries and other senior officials jumping ship or being pushed overboard, doesn’t help calm the waters.

Yet Powell and the seven other voting members of the Federal Open Market Committee saw fit to raise the federal funds rate by a quarter percentage point to a range between 1.5% and 1.75%. Not only that, but the FOMC stuck to its guns and indicated a steady diet of rate increases over the next three years, pushing rates closer and closer back to what used to be normal before the global financial crisis. After three rate increases this year, three more are likely next year followed by two more in 2020, which would boost the fed funds rates to a range of 3.25% and 3.5%.

And yet the world didn’t end. In fact, the yields on Treasury securities actually fell after the meeting ended on Wednesday afternoon. The 10-year note, the bond market’s long-term benchmark, trading just below 2.90% on Tuesday, fell five basis points after the meeting to 2.85%. The yield on the two-year note, which is more sensitive to interest rate changes, dropped seven bps after the meeting. Continue reading "The Powell Era Begins" →

Be Careful What You Wish For

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates - Glass-Steagall


When doing some background research for this column, I came across this article in the May 12, 2017, edition of the Los Angeles Times: “Something Trump and Elizabeth Warren Agree On: Bringing Back Glass-Steagall to Break Up Big Banks.”

Whatever happened to that idea?

As kookie and wrong-headed on other issues as Senator “Pocahontas” often is, she’s at least been pretty consistent when it comes to her view of the banking industry (she doesn’t like it). And according to the article, she wasn’t alone in wanting to “break up the biggest U.S. banks.” Guess who else was on that list? None other than departing White House chief economic advisor Gary Cohn.

Trump himself said, “We’re looking at it right now as we speak,” referring to “going back to the old system” under the Glass-Steagall Act in which commercial and investment banking were separated. Continue reading "Be Careful What You Wish For" →

Inflation - Getting Back To Normal

Posted on by George Yacik

George Yacik - INO.com Contributor - Fed & Interest Rates - inflation


So now, suddenly, out of nowhere, inflation has reared its ugly head, and the financial markets are starting to believe it.

On Wednesday the Labor Department reported that the consumer price index rose a higher than expected 0.5% in January, 2.1% compared to the year-earlier period. The all-important core rate, which excludes food and energy prices, rose 0.3% for the month, 1.8% versus a year ago. While not exactly hitting the Federal Reserve’s revered 2.0% annual inflation target, it was apparently close enough to create more jitters in the bond market, with the yield on the U.S. Treasury’s benchmark 10-year note immediately climbing seven basis points to 2.91%, its highest level in more than four years.

The very next day, Labor reported that the core producer price index rose 0.4% for the month and 2.2% year-on-year, which pushed up the yield on the 10-year another basis point, to 2.92%.

I’m not exactly sure why this recent surge in inflation should come as such a big surprise to anyone, but it surely has, witness the tremendous amount of volatility in the financial markets in just the past two weeks. The tipping point seems to have been the release of the January jobs report, the highlight of which wasn’t the change in nonfarm payrolls and the unemployment rate, which they usually are, but the 0.3% (2.9% annualized) growth in wages, which was the strongest year-over-year gain since June 2009.

That seemed to finally catch everyone’s attention that yes, contrary to what the Fed has been telling us for the past four years, inflation really does exist. Now we have more verification. And it’s probably only going to exacerbate.

And who do we have to thank for this new-found inflation? Continue reading "Inflation - Getting Back To Normal" →