As we move through the final week of trading in September, bonds are breaking out as global inflation is spikes.
September 25 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: We’re there, 3.11% in the 10 yr Treasury yield. Not only that, the 5 yr is at 2.99%. Again, 3.11% was the high close for the year touched on May 17th. Any close above that would be the highest since July 2011…
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Big moment. Bankrate.com last night said its average 30 yr mortgage rate was at 4.66%, one bp from the highest since May 2011. The selling today in bonds is following the same overseas. After being closed yesterday, Japanese JGB yields continued higher as well. The 10 yr yield was unchanged but the 40 yr rose another 2 bps, 7 bps now over the past two trading days. The selling spilled over into Europe with the German 10 yr yield up 2.5 bps to .54%, a fresh 4 month high. Italian bonds are the outlier as the government seems to have agreed to a budget deficit of slightly below 2% and the 10 yr yield is down by 10 bps.
I keep talking about Sweden for the sole reason that they have negative interest rates and are really trying to finding the time and will to start getting out. Well, they reported PPI for August and it rose 9.3% y/o/y. I had to go back to 1995 the last time I saw a faster rate of wholesale inflation. As it is PPI instead of CPI there wasn’t much of a market response but what a central bank dilemma that the Riksbank has created. Meanwhile, they lost their PM today in a no confidence vote.
Inflation Is Surging In Sweden!
Spain by the way reported a 5.2% jump in PPI and I guess this helps to contribute to the “relatively vigorous” pace of underlying inflation according to Mario Draghi. The ECB chief economist Peter Praet tried to walk back Draghi’s comments today by saying they were nothing new but the euro is up as are yields as stated. I only have this data going back to 2014 but you can see Spanish 10 yr inflation breakevens are near the recent highs. Central banks might just be getting the inflation they want.
Spanish 10 Year Inflation Breakevens Near Recent Highs
King World News – The surge in inflation is very bullish for gold and silver medium- to long-term. This may be another reason why commercials are long gold and silver as speculators and hedge funds remain near all-time record levels short.
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