Risky assets are back on the incline as Treasury yields ease off after hitting multi-year highs on Thursday. Also, the Federal Reserve Chairman calmed the nerves by committing to keeping the interest rates low and that it will continue to pump money into the economy.
In the early hours of Thursday, 10-Treasury yields jumped to 1.427%, last seen in March 2020, but ended the day lower at 1.3740%. Yields on 30-year Treasury soared to 2.888%, Dec. 2019 high to end lower at 2.226%. Bond prices and yields have an inverse relationship.
Today, they both are back on the rise by about 0.059%.
“Bonds puking, again… Need this to stop going down (i.e., rates going up) to have nice things,” said trader and economist Alex Kruger.
The 30-year German yield has also turned positive, rising to 0.2% from -0.2% in three short months. German 10-year yields are still negative though at -0.3%.
This spooked the central bank, and now “the ECB is closely monitoring the evolution of longer-term nominal bond yields,” said European Central Bank President Christine Lagarde this week.
Fed, however, is not that concerned when asked about the rise in yields; Jerome Powell said, “It’s a statement of confidence on the part of markets that we will have a robust and complete recovery.”
Rates going up is negative for stock valuations, particularly tech, and assets that benefited from negative real yields the most, gold and bitcoin, Kruger said,
“The thesis is the Fed will intervene to bring rates down.”
“If that trend is not stopped hold on to your horses because risk assets, gold and highly likely bitcoin as well are all in for a very rough ride down. You want to watch interest rates like a hawk.”
Risk On or Off?
This fall in yields, meanwhile, has sparked a rally in stocks. S&P 500 is yet again reaching its peak at nearly 3,935 from Feb. 12.
Tech-heavy Nasdaq, which slid 5.6% this week, is back at 13,600, still in need of a pump to hit its 14,095 all-time high from Feb. 12.
“In institutional circles, corporate treasuries are often looked down on as dumb money,” notes Kruger.
While stocks are clearly enjoying this fall in Treasury yields, the same is not the case for the traditional safe-haven asset.
Gold is not having a good week, and today the spot gold went under $1,790 per ounce. The precious metal is on a downtrend ever since it hit a new high in August at about $2,075.
The US dollar is also not enjoying the increase in yields and is back under 90, aiming to go for fresh multi-year lows at 89.2 in early January.
Coming to digital gold, Bitcoin had a brutal week, losing 23% of its value with a drop under $45k. For now, the market struggles to recover completely despite the price of Bitcoin going above $50,000. Trader Cantering Clark said,
“Rates are rising. Risk-on assets don’t really benefit in that situation. All assets would get hurt with a rapid rise. Saylor purchase and Tether news came out, and we don’t have a very obvious response. Would not get overly bullish.”
However, according to him, this is all just short-term as “Bitcoin has already cleared the runway and is now on its way to further appreciation and adoption.”
Alex Kruger is of a similar opinion as he notes that there’s a chance Bitcoin will do its thing as “institutional penetration remains very low.” This means the institutional inflow may continue, and retail will be busy stacking regardless. Also, corporates may join in and “be more focused on inflation or digitalization than rates.”