At this point in the cycle, waiting for higher rates is not investing in my view. It is speculating.
And I do no speculating with my bond portfolio.
The yield on the 10y T-bond is 4.577. It is off sharply just in the last 2 days.
Yes I have extended maturities.
Do some math. If you are still waiting, what sign will inform you?
In reference to the 10 year dropping quickly this is perfectly normal and does not portend lower future rates.
https://wolfstreet.com/2023/11/02/a...e-hype-hoopla-it-hasnt-done-anything-special/
In terms of closing yields (per Treasury Department data), the 10-year yield dropped from the high of 4.98% on October 19 to 4.68% now, a drop of 30 basis points in 10 trading days. So that’s a pretty big drop.
But when was the last time a 30-basis-point drop in 10 trading days occurred? In March 2023 (-58 basis points); in January 2023 (-45 basis points); in December 2022 (-34 basis points); in November 2022 (-46 basis points); in August 2022 (-36 basis points); in July 2022 (-43 basis points), etc. etc.
You get the idea: The 10-year yield is volatile, as Powell pointed out, and this stuff happens a lot, and to a larger extent.
And all these drops were followed by big surges in the yield, and amid all the ups and downs, the yield kept wobbling higher.
One sign I'm waiting for is what happens to inflation over the next 3 months. It has slowly ticked up above expectations the last couple of months and there are some base and health care effects starting to happen this month.
The Congressional Budget Office (CBO) projects the federal deficit to total $1.4 trillion in 2023 and average $2.0 trillion per year from 2024 to 2033.
And what does the 1.7 trillion deficit yet to be funded do to rates this year and 2 trillion per year for who knows how long. Recent deficits are happening while the economy has been running hot.
When we have a recession the deficit typically runs higher as the government tries to boost the economy.
And speaking of math, how long can we continue funding 2,000,000,000,000 dollar deficits?
What will that do to long term rates? Who is going to be buying longer term Treasuries at current rates with these enormous, unbelievable deficits when we're in a recession and the rating agencies keep cutting Treasury ratings due to the huge deficits? The Fed, QE again? We can't do that - that helped cause inflation in the first place and would further fuel it.
Does anybody believe the government will reduce spending
I believe the chance rates go higher, possibly much higher are more likely than rates going much lower from here.
And higher rates will ultimately force the government to reduce spending and most likely raise income and corporate tax rates.
That will finally reduce long term rates.
