Click to enlarge
Chart
Source:: Société Générale

 

Nice chart from Andrew Lapthorne of Société Générale describing the spike over the past few months in bond yields.

Lapthorne adds:

“Not that this seems to be worrying investors too much: equity markets have proven reasonably robust in the face of such rising yields and equity volatility continues to trade at reasonably low levels, while corporate bond spreads continue to head lower. As such it then seems that investors are happy to accept what they see in the better than expected economic data and to push interest rate worries to one side for the moment.”

Does this mean markets can absorb the coming “taper” or does it imply that investors are in denial?

 

 

Source:
Rapid bond sell-off yet to spook equity markets
Andrew Lapthorne
Société Générale, August 19, 2013
Global Quantitative Research

Category: Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “What Do Outsized Bond Yield % Increases Mean?”

  1. Mike in Nola says:

    1 vote for denial

  2. coleyc says:

    Agree with Minyanville, Monetary Policy Chaos… This is alteration of risk premium, nothing to do with expected growth or rise in inflation expectations. Would seem likely that this would bleed into equities. Is that why Soros bought $1.25 billion of SPY puts?

  3. d_dd says:

    Would love to see the same chart for Japan

  4. Joe says:

    i feel strongly about it both ways; mid/long term, life goes on. I bought a new car with credit union financing at 16% a life time ago under circumstances that were the polar opposite. What do you call higher rates? I’ve got perspective. Life will go on even as a historic lurch to an extreme unwinds.

    Short term,though, it’s about emotions. This, I’m less comfortable with. I can’t rule out panic attacks under the circumstances.

    • AtlasRocked says:

      Federal debt was much lower than, per GDP. No QE money was being printed then either.

      And the gov’t dependency was much smaller.

  5. cfischer says:

    If memory serves, wasn’t the Corporate Bond market a mess in 2008 while the equity market hummed along fine for a while?

  6. Pacioli says:

    “Does this mean markets can absorb the coming “taper” or does it imply that investors are in denial?”

    I think the question, as phrased, is a false choice.

    What it means is that markets are pricing in the “taper” right now. So, maybe the markets can absorb the taper, maybe not. You need to specify which markets you’re asking about.

    The bond markets are demonstrating that the current absorption of the coming taper is quite painful. The equity markets are mixed: some sectors do not mind, some are selling off. The commodities markets seem to be acting pretty well. The real estate space has sustained a sell-off.

    So the taper will be absorbed by markets (they have no choice). Some will be hurt, and indeed they already have been.

  7. VennData says:

    …they mean fewer investors are listening to Rick Santelli, Zero Hedgehog and the rest of the floppy shoes, big round red nose, and blue hair crew, finally.

    Someone needs to start a blog collecting all the stories of the GOP worshipers who went down in financial flames listening to Fox News, and reading the WSJ opinion page. It will be interesting to watch the trust fund GOPers joining their co-voters in the trailer parks.

  8. RW says:

    The markets have apparently judged, correctly in my view, that rising bond yields and some additional vol are consistent with economic recovery and nothing more.

  9. DeDude says:

    The “panic” seems to be rather specific to (and probably will be contained within) treasuries. To me it means that the people who had invested in 10-year treasuries as a short-term investment with no intend of keeping them until maturity, are convinced that the Fed will taper and that this will increase rates. People who were using longer treasuries as a “higher yield” place for funds that actually belonged in short-term treasuries, are now in a bit of a panic to get out and that is what the spike is showing us. I think it is likely that the rates on 10-year treasuries will be lower by the end of tapering than it is one week after the Fed make the announcement that now they will begin it. The current fall in deficits is more than enough to “cover” the predicted fall in Fed purchases of treasuries so I have no doubt that the markets can absorb the Fed getting out without rates getting substantially higher.

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