Daily Commentary

MarketMinder’s View: This is a nice look at the fact the recent upturn in bond yields seems to be mostly investors speculating on what the Fed may or may not do as opposed to widely hyped headlines around inflation expectations and deficits. Simply, real rates (the article cites several measures) aren’t up a ton as of late, which isn’t what you would expect if either of those factors were really the central issue. More to this point: Per FactSet data, the increase in Treasury yields is larger at the shorter- or medium-term part of the curve than the long end. Since July 31, 30-year Treasury yields are up just 0.09 percentage point (ppt)—scarcely a wiggle. 20-year yields? 0.12 ppt. 10-year yields have climbed more, 0.27 ppt, while 5-year and 2-year yields are up 0.39 and 0.38 ppt, respectively. Since the Fed exerts its maximum control at the short end, this movement suggests to us we are seeing markets sway on Fed actions. That is largely a sentiment function that can reverse fast. It doesn’t even need to be for all the reasons documented at the end of this piece. It could be as simple as markets pre-priced a move at the meeting, the meeting comes and reality arrives (with a hike or no). A “buy the rumor, sell the news” type of action.

MarketMinder’s View: This is basically a synopsis of conventional “wisdom” on what long-term interest rates and possible Fed hikes to short-term rates mean for markets. As such, there are some loosely sensible points, like scaling the change in 10-year yields from 2016 to now to highlight the additional reward in the bond market for people who may need a bond allocation as part of their portfolio strategy. But it also lumps in a whole lot of nonsense. For one, there is a bunch of recency bias demonstrated here in both thinking the recent upturn will persist and in assuming the present rates are high. They are indeed higher as the title presumes. But by historical standards, low rates in the 2010s are really the abnormal factor. The back part of this also presumes that the twin effects of higher rates and lofty valuations are a headwind for stocks. But neither of these factors would pass a historical test—stocks rose dramatically in the 1990s with rates around current levels or higher and high valuations. These factors just aren’t predictive, operating too much on widely known factors and past market movement, which never predicts.

MarketMinder’s View: This is kind of hybrid coverage that blends together a political promise (reminder: we favor no party nor any politician), personal finance and an economic data point. The data point in question is average UK wage growth in the three months to July, which came in at 3.9% y/y, matching expectations but slowing from 4.2% in the prior three-month period. These data, in and of themselves, aren’t all that meaningful, being a late-lagging function of past price pressures that employers incorporate after the fact. But they do have one personal finance implication: Under the UK’s “triple lock,” pension benefits are adjusted annually for the higher of three possible factors: 2.5%, the September inflation rate or average wage growth. If expectations for CPI hold, this 3.9% wage growth would be the adjustment. Hence: “This implies the full new state pension will rise from £241.30 a week (about £12,500 a year) to £250.70 a week (about £13,000 a year) from next April. For the two-thirds of pensioners who reached qualifying age before April 2016 in receipt of the old basic state pension, it will mean a rise to £192.10 a week (about £9,990 a year).” Now, this bumps up against frozen tax bands that limited tax-free allowances to £12,570 before, which would in theory make some of this increase subject to tax. But politicians are already promising that they will address this in the forthcoming budget and eliminate that issue. At any rate, consider this news you can use if you are a UK pensioner.