US Aggregate Bond Ishares Core ETF (AGG)

$SPY $TLT $AGG $BND

$SPY $TLT $AGG Another Bond Market Warning Yield Are Rising. Should Stocks Fall? History Suggests The Answer Is More Nuanced The 5% Test The 10-year Treasury yield recently crossed the psychologically important 5% level, a threshold that many investors had been watching closely. After months of rising yields, there was growing concern that breaking through 5% could trigger another wave of bond selling and send yields sharply higher. But that is not what happened. Yields briefly touched the level before pulling back, suggesting investors were still reluctant to push the cost of long-term money significantly above 5%, at least for now. That leaves a more important question for markets: was 5% actually a ceiling, or merely a temporary pause before yields move even higher? The Fed Story Has Reversed A year ago, markets were pricing for the Fed funds rate to fall toward 3% or below by mid-2027, assuming inflation would continue to cool and the Fed could gradually ease policy. That expectation has now largely reversed. The policy rate is around 3.5%, but futures are pricing it back toward 4.5% by next summer. Markets are no longer expecting a smooth path toward lower rates. The Iran war and renewed oil prices above $100 a barrel have made inflation harder to contain, while Kevin Warsh's Jackson Hole speech further pushed expectations for the eventual policy rate higher. 5% May Not Be The Ceiling History suggests that when the Fed enters a genuine tightening cycle, long-term Treasury yields can continue rising well beyond the initial move. In previous cycles, the 10-year yield often climbed by more than 100 basis points after tightening began. That creates a different possibility for today's market. The recent pullback from 5% could simply be a temporary correction rather than the end of the bond selloff. Some historical analysis even points toward the 10-year yield reaching 6% before the Fed eventually finishes tightening. While that sounds extreme today, strong nominal economic growth can itself justify structurally higher yields. So, Will Stocks Fall? This is where the relationship between rates and equities becomes less straightforward. Higher interest rates should pressure stocks by raising discount rates and making bonds relatively more attractive. But historically, stocks have not necessarily collapsed when the Fed starts hiking. Most tightening cycles have taken place while nominal GDP was still growing, allowing economic growth and corporate earnings to provide some support for equities. Across the previous six hiking cycles, the S&P 500 was almost invariably higher one year after the cycle began. The major exception was 2022, when the Fed was already significantly behind the inflation curve. The Real Risk Is 6% 2005 2010 2015 2020 2025 The bigger concern is what happens if the 10-year Treasury does not simply revisit 5%, but moves rapidly toward 6%. That would take long-term borrowing costs to levels the market has not experienced this century. The implications could be significant. Governments are carrying much higher debt loads after years of cheap financing, while companies and consumers have also become accustomed to relatively low borrowing costs. For equities, the bigger problem may not be the level itself, but the speed of adjustment. If yields rise faster than earnings and economic growth can absorb, valuations could come under meaningful pressure.

Market Minute ⏱️: Rising Yields and Fed in Focus Tickers Covered: $AGG $TLT $USO $IEF https://top-pros-top-picks.beehiiv.com/p/new-post-a120845eb10a535c

FERS, TSP people. Rate Hike makes for a stronger dollar. That's potentially bad for all funds, but particularly I-Fund ($ACWX), and F Fund ($AGG) in the near term. I'll be buying C Fund weakness and continued S Fund Weakness at about 20% of the C Fund buy in level.

$SPY $TLT $AGG $SGOV Why US Rates May Stay Higher The Era of Ultra-Cheap Money May Be Over The Era of Cheap Money Is Changing For decades, the global economy had an unusually large pool of savings. Baby boomers saved heavily for retirement, China and oil-rich countries accumulated US Treasuries, while companies were relatively cautious about investment. That abundance of savings helped keep the price of money low. With plenty of capital available, governments and businesses could borrow at relatively cheap rates. But the forces behind that environment are now changing. The World Has Less Excess Savings The supply of savings is becoming less abundant. Baby boomers are moving from saving for retirement to spending down their accumulated wealth, while China is no longer buying US Treasuries at the same pace as before. That matters because US Treasuries need a large pool of investors to absorb the government's growing borrowing needs. With fewer structural buyers, investors may demand higher yields to provide that capital. But Demand For Capital Is Rising At the same time, the economy needs more capital than before. The US government continues to run large deficits, defense spending is increasing, and companies are entering a major investment cycle around Al, data centers, semiconductors and power infrastructure. US publicly held government debt has already exceeded 100% of GDP, up from 79% before Covid, and is projected to reach 111% by 2030. More borrowing is therefore competing with private investment for the same pool of available capital. Why 4.7% Reasonable May Be One way to estimate a long-term "normal" interest rate is through the real natural rate, the real rate consistent with an economy growing at its potential. Bloomberg Economics estimates this at around 2.6% for the US. To convert that into a nominal rate, add roughly 2.1% long-term inflation: 2.6% real rate + 2.1% inflation = 4.7% This suggests a ~4.7% 10-year Treasury yield can be consistent with long-term fundamentals, rather than being purely a temporary spike. 4-5% Could New Normal Become The This creates an important distinction. Treasury yields can rise because the Fed is temporarily too hawkish, because inflation is unexpectedly high, or because of geopolitical shocks such as the Iran war. But even if those factors disappear, yields may not return to the extremely low levels seen during the 2010s. The underlying supply and demand for capital has changed. Less excess savings, higher government borrowing and a much larger investment cycle could keep the equilibrium cost of money structurally higher. Higher Rates Are Not Entirely Negative Higher rates obviously create challenges. The US government has to pay more interest on its debt, mortgage rates can remain elevated for longer, and companies face higher refinancing costs when existing debt matures. But if rates are rising because capital demand is strong, driven by Al, data centers, they can reflect productive investment rather than simply an overly tight Fed. The question is no longer just "When will the Fed cut?" but "What if the price of money has fundamentally changed?" The era of ultra-cheap money may be coming to an end. Not because inflation is permanently higher, but because the balance between global savings and capital demand is changing. Less excess savings. More government borrowing. And a massive new investment cycle driven by Al and infrastructure.

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$AGG $SPY $TLT if no hike this week, markets will take a dump.

$SPY $TLT As much as they should hike rates this Wednesday. Very strong chance they keep rates unchanged. Higher bond yields are here to stay. $AGG

$SPY $TLT $AGG $BND The Fed cut rates by 50 bps in September 2024, declaring victory against inflation. That was a policy mistake, and they compounded the mistake by cutting another 125 bps. They should hike rates by 50 bps this month and tollow that up with 50 bps hikes in October and December.