Wednesday, Oct 4, 2023

turmoil in yields, how this could affect crypto, yen tension, markets worried

“What is wanted is not the will to believe, but the will to find out, which is the exact opposite.” – Bertrand Russell ||

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IN THIS NEWSLETTER:

• What bond markets are signaling

• What’s going on in Japan?

• Medium-term, this is good for crypto

• Things are heating up (literally)

WHAT I’M WATCHING:

Whoa…

Ok, I’ll just say it: moves in bonds and currencies are getting alarming. Stocks aren’t looking too healthy either.

The US 10-year yield has barrelled past 4.8% and is on its way to 4.9%.

(chart via TradingView)

It’s not far off from its 2006 high. Jamie Dimon’s prediction of 7% 10-year yields doesn’t look so crazy anymore.

(chart via TradingView)

Why it matters:

This matters for many, many reasons, but the main ones we have to keep an eye on for now are:

1) The signalling

On Monday, we saw yields on US debt continue to go up even though a government shutdown had been averted, and even though the spending plan ended up being less than many wanted.

This was largely because of weakening trust, and the continued climb sends the message that the trust is weakening further still.

It’s not that investors no longer trust the US government to repay its debts – it’s that confidence is weakening. The price of insurance on a US default has doubled over the past month, and is now at its highest level since the aftermath of the banking crisis earlier this year:

(chart via worldgovernmentbonds.com)

This confidence is weakening in part because investors know that the political dysfunction in the US is getting worse. Yesterday’s ousting of Speaker McCarthy (who I thought did an impressive job over the weekend) – the first ever expulsion of a speaker by the House – only adds to the impression of chaos and intransigence. The odds of a government shutdown in November just went up to something like 100%.