Market Musings 051123: Trend change in long-term rates?
Summary:
Long-term interest rates take a tumble
What if, over the next six months, inflation rates continue to fall faster than expected?
Europe: the 3 leading sectors since start-2022
Podcast this week:
Five surprising facts about Gold
In this podcast, Edmund Shing analyses the recent highs in gold and shares five surprising facts.
How much gold is in circulation today?
What are the main uses?
Who has been buying gold lately?
How much more gold is mined every year?
Do people tend to buy gold via funds and ETFs?
Long-term interest rates take a tumble
Following on from last week's article, the US 10 year bond yield (“the one rate to rule them all”) fell sharply towards 4.5% on Friday. In total this long term interest rate has therefore fallen half a percent from the 5% peak it reached recently.
US 10-year Treasury bond yield drops nearly 0.5% from 5%
Source: tradingview.com
The drivers of this fall in bond yield were effectively weaker economic activity in the US, underlined on Friday by relatively weak employment reports, which followed on from a weak ISM manufacturing Survey Report for the month of November.
US employment survey: -348,000 employed in October
Source: St Louis Fed
US ISM manufacturing survey in contraction territory (< 50)
Source: ISM
At the same time, inflation indicators continue to point lower particularly in the form of lower gasoline prices as well as weaker rents, falling housing activity including prices and also evidence that wage inflation continues to moderate.
Long term interest rates around the world have also followed suit, notably in Europe and the UK, where the UK 10 year gilt yield and the German 10 year bond yield have both also declined, taking their lead from events in the US.
US 10-year bond yield: down to 4.57% on Friday
Source: tradingview.com
Economic activity has already slowed dramatically in both Europe and the UK. And indeed, the most recent inflation data seems to be slowing even more…
