Chart Talk: July 10th 2024


One of our favorite econominists, Torsten Slok, from Apollo AssetMangement recently released a chart detailing the shift in the yield of the 10-YearU.S. Treasury Note.  Slok noted that “Sofar, 10s have been moving around one-to-one with Fed expectations (see chartbelow).   But in recent weeks, a gap hasopened up, suggesting that other factors, perhaps including the fiscal outlook,are beginning to play a role for long rates.”

In ouropinion, Slok has concluded that given the spread between the differingmetrics, investors are beginning to get worried about the health of the financialmarkets and global economies.  Slok contraststhe signals that a rate cut is in order, namely a slowing economy, weak ISMnumbers and unemployment ticking upward versus various forces putting upwardpressure on inflation – deglobalization, immigration uncertainty, defensespending, and the ongoing transition in the energy market.  

What we do knowis that investors hate unknowns – and with so many unknowns out there, they willflock to safe havens, which as you can see, are shorter duration assets.  All things being equal, that incrementalincrease in demand for those securities in turn pushes longer duration assetshigher.  We are of the opinion that as wedraw nearer to the election, the yield on the 10-Year Note will begin tostabilize as the path the country will be about to choose from both a monetaryand fiscal perspective, becomes clearer.

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