Bulletin
Investor Alert

London Markets Close in:

Need to Know Archives | Email alerts

Aug. 16, 2021, 9:15 a.m. EDT

This bond expert called the initial spike in interest rates. He now says a new chapter will emerge.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    U.S. 10 Year Treasury Note (TMUBMUSD10Y)
  • X
    BHP Group Ltd. ADR (BHP)
  • X
    Hyatt Hotels Corp. (H)

or Cancel Already have a watchlist? Log In

By Steve Goldstein

Scott Peng, the founder and chief investment officer of New York investment manager Advocate Capital Management, made at the beginning of the year what seemed to be a prescient call — that the yield on the 10-year Treasury would spike .

And it did, for a while, surging as much as 83 basis points in the first quarter. But bonds quickly became back in fashion again. In a new note to clients, Peng cites a variety of factors that led yields to then fall up to 60 basis points from the March highs.

For one, the economic data weren’t as strong. The Institute for Supply Management manufacturing index peaked in March, and the ISM services index peaked in May. “While economic data still pointed to growth, second-quarter economic growth was a bit more uneven than the torrid pace of the first,” said Peng, previously Citi’s chief interest-rate strategist.

The emergence of the delta variant of coronavirus, and hedge funds reducing their short positions, also were factors behind the surge in bonds.

Peng, however, expects bond yields to rise once more, saying a number of factors will lead to another bond conflagration. For one, the inevitable taper to the Fed’s quantitative-easing program is drawing closer, while more fiscal stimuli are on the way, in the form of the bipartisan stimulus bill as well as the massive $3.5 trillion plan Democrats will try to push through.

The U.S. labor shortage, a hotter-than-capacity stimulus-stoked economy, and consumers drawing down their accumulated savings all will add fire, he said. The six-month average of the monthly change in retail sales, 2.7%, is more than 5 times the pre-pandemic average of 0.5%, he said.

While the start of a new trend is exciting, it typically ends after too many people pile onto the same side of the boat. “After a correction to reset the supply-demand balance, the long-term trend reemerges. We might be at that critical juncture between the correction and the reassertion of the long-term trend in the rising rate saga,” he said.

In early Monday action, the yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.43% was 1.28%.

The buzz

The stunning fall of Afghanistan to the Taliban — as well as the political fallout for the Biden administration — dominated conversation.

The Empire State manufacturing index for August tumbled to a worse-than-forecast reading of 18.3 from 43 last month, as Chinese economic data came in slower than forecast.

Bloomberg News reported that Saudi Aramco is in talks to buy a $25 billion stak e in the oil refining and chemicals business of Reliance Industries, as mining giant BHP Group /zigman2/quotes/208108397/composite BHP -0.28% said it may sell its petroleum holdings.

Hyatt Hotels /zigman2/quotes/207542923/composite H -0.34% struck a $2.7 billion deal to buy Apple Leisure Group from its private-equity owners. France’s Faurecia /zigman2/quotes/208852435/delayed FR:EO -2.20% reached an $8 billion deal to buy Hella /zigman2/quotes/207116108/delayed XE:HLE +0.10% , in a deal it said will make it the world’s number-seven automotive supplier.

Audio equipment maker Sonos /zigman2/quotes/200589226/composite SONO -1.20% won an International Trade Commission ruling that Alphabet unit Google /zigman2/quotes/205453964/composite GOOG +0.26% infringed on five patents.

The markets

U.S. stock futures /zigman2/quotes/209948968/delayed ES00 +0.47% /zigman2/quotes/210219788/delayed NQ00 +0.34% fell to kick off the week. The Australian dollar /zigman2/quotes/210560947/realtime/sampled AUDUSD +0.7420% declined amid the weak Chinese data as well as its own lockdowns.

The chart

What’s untouchable to investors? A poll by Morgan Stanley of institutional investors found “controversial” weapons makers, thermal coal and tobacco as the three most excluded sectors. What also was interesting was that 60% of exclusions were due to firm level policies, and 40% due to a specific fund.

Random reads

An aspiring investment banker is stuck in Afghanistan on vacation . “I like risk,” he says.

The White House released a photo of President Joe Biden. Twitter users focused on two clocks .

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, including exclusive commentary from Barron’s and MarketWatch writers.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
1.62
+0.02 +1.43%
Volume: 0.00
Oct. 19, 2021 10:44a
loading...
/zigman2/quotes/208108397/composite
US : U.S.: NYSE
$ 57.85
-0.16 -0.28%
Volume: 1.37M
Oct. 19, 2021 10:44a
P/E Ratio
13.30
Dividend Yield
10.37%
Market Cap
$143.27 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/207542923/composite
US : U.S.: NYSE
$ 85.61
-0.29 -0.34%
Volume: 51,329
Oct. 19, 2021 10:43a
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$9.44 billion
Rev. per Employee
$55,838
loading...
/zigman2/quotes/208852435/delayed
FR : France: Euronext Paris
42.33
-0.95 -2.20%
Volume: 302,177
Oct. 19, 2021 4:29p
P/E Ratio
28.80
Dividend Yield
2.36%
Market Cap
€5.83 billion
Rev. per Employee
€128,620
loading...
/zigman2/quotes/207116108/delayed
XE : Germany: Xetra
59.44
+0.06 +0.10%
Volume: 76,487
Oct. 19, 2021 4:28p
P/E Ratio
13.15
Dividend Yield
1.62%
Market Cap
€6.60 billion
Rev. per Employee
€168,865
loading...
/zigman2/quotes/200589226/composite
US : U.S.: Nasdaq
$ 32.08
-0.39 -1.20%
Volume: 335,303
Oct. 19, 2021 10:43a
P/E Ratio
22.91
Dividend Yield
N/A
Market Cap
$4.08 billion
Rev. per Employee
$929,452
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,866.76
+7.55 +0.26%
Volume: 210,458
Oct. 19, 2021 10:44a
P/E Ratio
31.11
Dividend Yield
N/A
Market Cap
$1905.13 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/209948968/delayed
US : U.S.: CME
$ 4,498.50
+21.00 +0.47%
Volume: 417,662
Oct. 19, 2021 9:34a
loading...
/zigman2/quotes/210219788/delayed
US : U.S.: CME
$ 15,343.25
+52.75 +0.34%
Volume: 202,375
Oct. 19, 2021 9:34a
loading...
/zigman2/quotes/210560947/realtime/sampled
US : Tullett Prebon
0.7467
+0.0055 +0.7420%
Volume: 0.0000
Oct. 19, 2021 10:44a
loading...

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.