This is the video recording of our March 6th Monthly Charts Live Strategy Session

It's the weekly bond edition of What the FICC?

Developed European benchmark interest rates are posting fresh highs. Those potential failed breakouts back in early January have quickly turned into nothing more than false or premature moves.

And while US yields continue to climb, their recent rise pales compared to their European counterparts.

Check it out!

From the Desk of Ian Culley 

Markets churn sideways, plagued with indecision. But one thing is certain…

The global rising rate environment remains intact.

Developed European benchmark interest rates are posting fresh highs. Those potential failed breakouts back in early January have quickly turned into nothing more than false or premature moves.

And while US yields continue to climb, their recent rise pales compared to their European counterparts.

What does that imply for domestic rates in the coming weeks and months?

For the past year and a half, we have turned to developed European yields for insight into the direction of domestic interest rates. 

The analysis proved insightful as the rising rate environment has been global in scope. Europe has given a nice heads-up regarding the direction of yields stateside. And the market continues to support this approach. 

Check out the German 10-year yield:

It's the weekly bond edition of What the FICC?

The narrative is quickly shifting back to tighter monetary policy following last week’s higher-than-anticipated CPI and strong economic data.

With these newfound recessionary fears circulating, I want to share a chart I like to avoid… The 2s10s treasury spread.

From the Desk of Ian Culley 

Rates continue to rise along with concerns of an impending recession.

The narrative is quickly shifting back to tighter monetary policy following last week’s higher-than-anticipated CPI and strong economic data. I don’t pay too much attention to this gossip. But I do keep a pulse on the latest discourse surrounding markets.

With these newfound recessionary fears circulating, I want to share a chart I like to avoid… The 2s10s treasury spread.

I can’t remember the last time I wrote about the yield curve. It’s been so inverted (deepest inversion since the early 80s) for so long that I honestly don’t know what to think.

Nevertheless, the overlay chart of the Staples sector $XLP relative to the S&P 500 $SPY with the 2s10s spread conveys an important piece of information:

It's the weekly bond edition of What the FICC?

Commodity-related stocks remain hot despite a narrative of easing inflation.

Check it out!

From the Desk of Ian Culley 

I prefer to focus on price when analyzing markets. 

It’s what pays us at the end of the day. And it bakes in all the news and lagging economic data I tend to ignore.

A few weeks ago, I urged investors to track trends, not inflation.

Honestly, I was only half serious. I pay attention to the Fed and CPI data – mainly to stay aware of the increased volatility accompanying important release dates. 

But price is king. And when I look at my charts, the narrative of easing inflation appears suspect...

Check out the overlay chart of the Metals and Mining ETF $XME and the TIPs vs. US Treasuries ratio $TIP / $IEF:

It's the weekly bond edition of What the FICC?

I thought it was odd bonds didn't react to last week's rate hike. Regardless, the lack of volatility represents a positive development for risk assets, especially stocks.

Check it out!

From the Desk of Ian Culley 

Markets don’t always trend higher or lower. In fact, traders often deal with churn – which sometimes is nothing more than a range-bound mess.

"Sideways" is a trend that's all too easy to forget after last year’s historic volatility. Even bonds became risk assets in 2022!

I found it odd when bonds failed to react to last week’s rate hike along with other long-duration assets.

But the lack of bond market volatility might be exactly what risk assets, especially stocks, need right now.

Check out the chart of the US 10-year yield:

The US benchmark rate continues to hold above 3.40%. This has been our line in the sand for months, coinciding with the June pivot highs from last year.

It starts with credit.

Bottom line.

This isn't crypto where all these shitcoins can go to zero and it won't matter to anyone who matters.

These aren't marijuana stocks that are irrelevant to global asset allocation.

This is the bond market.

This is the biggest and baddest of them all.

We're talking about almost a $120 Trillion asset class.

It's just math: if there is real systemic risk in the equities market, you're going to see it in credit.

There's no way around it.

And so how are credit spreads doing?

As tight as they have been since last summer, and getting tighter:

This is the video recording of our February 6th Monthly Charts Live Strategy Session

From the Desk of Ian Culley

The FOMC handed down the expected 25 basis point rate hike yesterday. Yet markets didn’t react until Fed Chair Jerome Powell spoke 30 minutes later.

That's right, he dropped the D-word – “disinflation.”

To be clear, I don’t care what he said. Instead of hanging on the Fed Chair's words, I prefer to focus on the markets. I find it more enjoyable.

But, boy, did markets respond!

The most striking aspect of yesterday’s reaction was highlighted by the relative strength of growth stocks.

Check out the overlay chart of the US T-Bond ETF $TLT and the ARK Innovation ETF $ARKK:  These charts tend to move tick-for-tick, as long-duration assets benefit from the same market environment.