The real story ahead of the PPI and Retail Sales reports is Treasury rates, which continue to rise despite Tuesday’s soft CPI report. Today, we’ll also hear from Powell as part of the Fed’s framework review—all while the 10-year rate breaches 4.5% and the 30-year approaches 5%.
A 100% extension of the 30-year breakout, which appears to be a bull flag, suggests the 30-year rate could rise to 5.5%. A lot would have to go right—or rather, wrong—for that to happen, such as a hot PPI or possibly strong import prices on Friday. I don’t know, but if you believe in technical analysis, that looks like a clear bull flag to me.
I’m not sure what happens this time, but in some ways, the bond market now knows it can push Trump and Bessent around—and that’s precisely what it’s about to do. I don’t see how this could be good for the stock market. Maybe it’s about tariffs, maybe it’s about the debt, maybe it’s about the next tax bill, whatever it is, we will soon find out.
There are two reasons why rates are rising: inflation expectations, and not the short-term kind—we’re talking about the 10-year kind. The 10-year inflation swap rose to 2.46% yesterday, and while that’s still below the highs, if you’re into technical analysis, maybe we’re seeing an inverse head and shoulders pattern forming. Maybe. It’s too soon to know for sure.
The second reason is that investors are demanding more compensation for the risk of holding bonds, as the term premium continues to tick higher.
We also saw the VVIX rise for a second consecutive day, and the VIX increased yesterday as well.
HY spreads also widened yesterday—not a huge move, but in line with the rise in the VIX. Interestingly, with the S&P 500 finishing higher on the day, there was a mild divergence.
It was not a good day for the HGX, and it doesn’t look promising. However, the HGX can sometimes be a strong leading indicator for the S&P 500, so it’s worth keeping an eye on.