Real yields decline
August 17, 2021
–Retail Sales today expected -0.3% but ZH reports that BAML forecasts a much weaker number based on credit card usage. Powell conducts an educator town hall at 1:30 EST. Yields continue to slip as Covid-delta weighs on confidence and the Afghan disaster throws US foreign policy into disarray. “We planned for every contingency” …according to our own timetable. (Hey Taiwan, you’re on your own). Tens fell 4.4 bps yesterday to 1.253%. The St Louis Fed marks the low in the ten-year inflation-indexed note yield at -119 bps, yesterday it fell 2.5 to -111.5 approaching that low. Typically, declining real yields are good for gold, and indeed, the $100 plunge from August 9 has been taken back with Dec gold again just shy of 1800. (+6.6 at 1796.4)
–Blues (4th year forward) were the lead performer on the dollar curve, rising 6.5 bps. A couple of weeks ago there was a sizable buyer of 0EZ 9937/9912p spread for 3.25; yesterday there was a new buyer of 50k 0EH 9937/9912ps vs 9975c covered 9949 with 36 delta for 2.25 to 2.5. Settled 3.0 vs 9947.0. News outlets are pegging the end of taper for the middle of 2022, which implies a pace of about $15 billion per month, opening a window for actual rate hikes at the end of 2022, continuing in early 2023.
–Though forward growth prospects appear muddy, the inflation outlook does not seem like it is ready to improve. Slower growth, higher prices, with shelter beginning to feed into official data. Powell will surely be talking it down today.
