Here's what a look at the 10-year treasury yield can tell you about what's in store for Wall Street.
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00:00 We've heard lots of different pundits throw around buzzwords around bonds as of late.
00:04 Can you simplify all this for us, Bob?
00:06 What does the recent trading tell you and why should the average member of the portfolio
00:10 at home care about what they're seeing in that particular yield movement?
00:15 Well, when yields rise, J.D., it means that borrowing costs are much more expensive and
00:21 it costs more money to buy a house, to get a loan.
00:26 Credit card interest rates are higher and your bond holdings, there's a lot of investors
00:33 who have long-term bond holdings, those prices are going down because when yields, remember
00:38 yields and prices move in the opposite direction.
00:42 I think not only, when you talk about bonds, J.D., not only is the Fed selling bonds, they're
00:48 selling them at a very rapid rate now, close to $100 billion a month.
00:54 So they're selling them off their balance sheet, but also we're seeing that the Chinese
00:57 have also been selling bonds at a slower clip over the past couple of years.
01:03 Their balance sheet of U.S. treasuries has been reduced drastically and you have to figure
01:08 out, try to figure out who is going to take these fixed income instruments off their hands.
01:15 I just don't see it happening, which is the demand for those bonds is low.
01:21 You see yields starting to rise.
01:23 You could certainly see 6% on the 10-year any time soon.
01:26 Don't forget we have another car wreck potential coming up with the government, potential government
01:31 shutdown in a few weeks.
01:32 And of course, if that gets resolved, we can see the markets starting to rise.
01:35 But like last time, they just put a Band-Aid over it.
01:39 And then we of course have new leadership in Congress this week, which may not be willing
01:43 to play ball with President Biden.
01:45 If the government shuts down or the circus continues, we are likely to get a downgrade
01:50 of our debt and rates will certainly climb on that.
01:53 So interestingly enough, you know, treasuries at 5 to 6%, interestingly enough, are much
01:59 more attractive for a yield than say the Russell 2000, which is down 6% 2023.
02:07 Do you see, I mean, some have said they might see that 10-year even going north of 10%.
02:12 Is that anything that you foresee happening or you are concerned about, Bob?
02:17 If the Fed does not rein in inflation, anything is on the table.
02:23 And I mean anything.
02:25 I mean, double-digit inflation we've had last year, it just continues to go on.
02:30 We need to see negative readings now.
02:33 With the work that the Fed has done for the past year and a half, it's slowly going into
02:38 the dripping down into the economy.
02:40 But it's not having an effect on inflation yet.
02:42 So I think that the Fed has to shift into another gear here and start saying, look,
02:47 we've got to be a little bit more serious, a little bit more onerous on interest rates,
02:53 and push them up to levels that can certainly separate the economy from inflation.
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