With everyone awaiting the Fed’s decision on interest rates, there was some wild trading taking place overseas.
Wild Trading In Japan
August 1 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: Another day and another discussion about Japanese bonds because oh man, what a night. With the BoJ now saying that they will tolerate a 20 bps band around the zero yield on 10 yr JGB’s from 10 bps previously, that was just an open invitation for a test. Overnight the 10 yr yield spiked by 7 bps to .13%.
That is the highest level since January 2016 and compares with .035% one and half weeks ago. The 40 yr yield was up by 6 bps to .93%…
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Boockvar continues: I know, these yields are still very low but that is not the point, it is the direction and it is the correlation among global bonds that is bearing fruit. European bond yields are up across the board and the US 10 yr yield is right back to 2.98% from 2.95% yesterday. The German 10 yr is up 2.5 bps to .47%, a 6 week high. The UK 10 yr gilt yield is up by 3 bps to also a 6 week high ahead of a rate hike tomorrow.
Bottom line, any discussion on where the US yield curve goes has to include the direction of Japanese and European bonds as their central banks try to tip toe their way away from extreme easing. I expect a steepening from here for the sole reason that rates are rising in Japan and Europe.
The 7 bps w/o/w rise in mortgage rates to 4.84% to just below a 4 year high, because of the rise in Japanese yields that lifted US rates, led to a 3.1% w/o/w drop in mortgage purchase applications to buy a home and which are up just 1.2% y/o/y. Refi’s fell 1.7% w/o/w and are lower by 29% y/o/y. We’ve seen enough data this year to know that the housing market for now has plateaued.
Notwithstanding the selling in big cap tech over the last week, professional newsletter writers as measured by Investors Intelligence remained pretty bullish as Bulls fell only modestly to 54.5 from 54.9 last week while Bears ticked up by .2 pts to 18.8. Any Bull read in the mid 50’s or higher is considered the upper end. With respect to the low level of Bears, still, II said “This category shows little fluctuation over the last few months and most editors are not worried that the bull market is over.”
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