New high Gilt yields
January 9, 2025
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–UK assets continue to deteriorate, with 10y yield at a new high 4.83% and GBP 1.2260 (from 1.3440 three months ago). Gilt yield high was 4.75% in August of 2023.
–Estimate on BBG says LA fires could cause $57b in damage.
–US futures close at noon today in honor of President Carter.
–Waller leaned dovish. Looking for inflation to continue lower. Cites imputed prices for housing as a possible lagging indicator.
“If you look at the prices associated with the other two-thirds of core PCE, they on average increased less than 2 percent over the past 12 months through November. I don’t support ignoring our best measures of prices for housing and non-market services, but I find it notable that imputed prices, rather than observed prices, were driving inflation in 2024 and thus expectations of the policy rate path.”
- FED’S WALLER: LONG TERM YIELDS MAY HAVE MORE OF AN INFLATION PREMIUM, BUT SAYS FED WILL FIX THAT
– WALLER: U.S. DEFICITS MAY ALSO BE DRIVING LONG YIELDS HIGHER
–Not much net change in treasury yields yesterday. 10s ended at 4.691% up just under 1 bp. 30y holding above the high from last April (4.81%) current yield is 4.91%. High in October 2023 is 5.11%.
–On the SOFR strip deferred calendars continue to make new highs (curve steepening). The magnitude of moves is relatively small, but the direction is a tell. For example, SFRH6 is tied with Z5 as peak contract (price) at 9601.5. At the start of December, H6/H7 calendar was at a low of -12.5, now +9.5 (9601.5/9592). H6/H8 calendar went from -15 to +18.5 over the same time period (H8 at 9583). Another spread worth noting is 10y breakeven (10y yield minus 10y inflation-index tip). Since 2023 this spread has ranged from 250 bps to around 215, with a recent low in September of 203 (just prior to initial FOMC cut). It’s now 242.7 bps, threatening the upper end of the range. It will be hard to argue that inflation expectations are contained if this spread starts printing new highs.
–Consumer Credit isn’t a major release, but yesterday’s was an implosion. For November, Revolving Credit plunged $12.0 billion (though the month before it was +13.4b). In a broader overview, at the end of 2023 Consumer Credit (revolve and non-revolve) was $5.023.7T. As of November, it’s $5102.4T. Only eleven months, but the increase is only 1.6%. Below the inflation rate. As everyone is aware, delinquencies are growing.
This from Elliott Wave Theorist (I believe)
“According to The Council of State Gov’ts, just two state pension funds, Washington and S Dakota, are fully funded, leaving 48 states underfunded. Illinois and Kentucky are only 50% and 52% funded respectively, and that’s AFTER a long bull market. The next bear market will produce many disappointed pensioners.”
