Bond vigilantes are back

Bond vigilantes reared their heads on last Thursday taking the 10-year US treasury to 2.42%.

The largest sovereign market participants grew tired of funding the US with a money losing investment.

While Fed chair Janet Yellen has been saying she is concerned that inflation is muted and is below the Fed benchmark of 2%.

Main St. is scratching its head saying where is Yellen looking? There is price inflation throughout the economy. Sure gas prices have declined, but grocery staples are up.

Well Yellen needs to keep the strawman of low prices and inflation levels to keep borrowing rates low. Low rates mean lower costs on US borrowing.

However, the largest of the bond shops are looking for other investments to put their money to work.

Jeff Gundlach the new Bond King of Doubleline Capital –– who recently came out and said what I been saying all along that the Fed would not raise rates this year –– is moving some of his money into making bridge loans on commercial property in order to get a better return rate on its $47B in assets under management.

A byproduct of this rise in rates –– and a decrease in price –– will be that bank stocks should rise as a result of steepening yield curve, which essentially means more profits for the banks if they loan the money out. Something the banks have been loathe to do.

Tomorrow we’ll talk about where this bond cash is being deployed.




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