10y tip says silver has room to run
July 22, 2020
–Stocks opened stronger yesterday on the back of an EU Recovery stimulus agreement, but sold off late in the day as McConnell said he doesn’t expect Congress to pass a relief extension bill by next week. Kicking the can with last minute deals. Business as usual, at least in governmental affairs. Fed nominee Judy Shelton was approved by the Senate Banking Committee. Some had been concerned about her views on Fed independence, but that ship has already sailed.
–Interest rate trading has become extremely quiet. Tens finished down 1.3 bps to 60.5. There was a new buyer of 30k 2EZ 9950p for 3.75 ref EDZ2 9974, but all other midcurve puts in front of 2EZ only traded 18k in total.
–The ten-year inflation-indexed note (real) yield dropped to -89.5, essentially equaling the 2012 all-time low of -91.7. Little wonder that precious metals are breaking out, with a sparkling surge by silver this week of nearly 20%.
–Since the real 10y yield is approximately equal to the all-time low of 2012, I thought it might be worth taking a look at where other markets were at that time. In late 2012 DXY was around 80, having rallied earlier in the year up to 84. Currently DXY is at its low of 95, having surged to 102 in late March. Gold was at $1800. It hasn’t been that high again…until now (1858 currently). Ten year yield was 1.50% vs 60 now. 5/30 was over 200 bps vs 104 now. Finally, SPX was less than half its current level at around 1400. By the way, silver was 35, vs 22.20 now.
