The most confusing piece for me is credit spreads. What is the level of treasury yield that translates into higher credit spreads? I thought it would be around here, but no sign of it yet. I am kind of amazed that we have had a decade of negative rates with a private equity/ credit feeding frenzy, then rates jump and the long end keeps grinding higher, and we don't have more bodies floating to the surface. I guess the PE stocks will move first, and so maybe the credit spread move is just around the corner? Or it might be that inflation is the perfect panacea for all debt and so there is never a credit problem no matter what the Treasury yield?
I think credit spreads move with employment... especially in the US. So as long as employment holds up, I would not expect a widening. More likely is treasury yields sell off to create the crisis.
True - I think the same in UK. But I wonder if that is a reflection of government priorities shifting to pro-labour? Market is sending a signal to produce less bankers and more engineers...
1) don't you think that demographics play a role, the youth bulge of the 1970s led to high yields than the otherwise geriatric 2020s? (I accept that Japan is a counterpoint)
2) at 10% on the 30 year bond, what happens to the mortgage market, private equity and other duration plays?
I think with equities, share buy backs continue regardless of equity and bond valuation - and that is what is driving this breakdown. From a tax perspective, buy backs are efficient, so a policy change may be required to reassert the old relationship
Adding self-reflection and vulnerability (and your musical selections) to a factual analysis makes for compelling reading. Congrats!
Time for some sun perhaps.
The most confusing piece for me is credit spreads. What is the level of treasury yield that translates into higher credit spreads? I thought it would be around here, but no sign of it yet. I am kind of amazed that we have had a decade of negative rates with a private equity/ credit feeding frenzy, then rates jump and the long end keeps grinding higher, and we don't have more bodies floating to the surface. I guess the PE stocks will move first, and so maybe the credit spread move is just around the corner? Or it might be that inflation is the perfect panacea for all debt and so there is never a credit problem no matter what the Treasury yield?
I think credit spreads move with employment... especially in the US. So as long as employment holds up, I would not expect a widening. More likely is treasury yields sell off to create the crisis.
It seems that the US labour market (graduate employment) is weakening?
True - I think the same in UK. But I wonder if that is a reflection of government priorities shifting to pro-labour? Market is sending a signal to produce less bankers and more engineers...
1) don't you think that demographics play a role, the youth bulge of the 1970s led to high yields than the otherwise geriatric 2020s? (I accept that Japan is a counterpoint)
2) at 10% on the 30 year bond, what happens to the mortgage market, private equity and other duration plays?
I think with equities, share buy backs continue regardless of equity and bond valuation - and that is what is driving this breakdown. From a tax perspective, buy backs are efficient, so a policy change may be required to reassert the old relationship
Nominal growth is likely stronger than expected is what markets are saying to me - bonds are mispriced.