Fixed Income Weekly — 9/25/24
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed-income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation, and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1-year return profiles for a cross-section of the fixed income world.
Our Fixed Income Weekly helps investors stay on top of fixed-income markets and gain new perspectives on the developments in interest rates. You can sign up for a Bespoke research trial below to see this week’s report and everything else Bespoke publishes for the next two weeks!
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Bespoke’s Morning Lineup – 9/25/24 – Gold Glitters
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“I putt like I did when I was a kid. When you’re a kid, you’re not scared of anything.” – Arnold Palmer
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s a quiet morning in the markets so far as US equity futures are flat to modestly lower while US treasuries are modestly higher as they’ve steadily risen since the Fed cut rates last week. The only economic report remaining on the calendar this morning is New Home Sales, but weekly mortgage applications were released earlier today, and while overall applications were up 11% for the week, nearly all of it was related to refinancing activity which was up 20% compared to a gain of just 1% for purchase applications.
While 10-year yields seemingly rising every day since the Fed cut rates last week, gold is on pace for its sixth straight day of gains and its fifth straight record closing high. Gold surged earlier in the year before trading in a sideways range from April through July. Still, as summer wound down and the current easing cycle became more of a certainty, investors have been piling into the world’s oldest inflation hedge.
Looking at gold from a longer-term perspective, all-time highs in the price of gold have been relatively rare. Since 1976, it has closed at a record high on just 2% of all trading days, and they were generally concentrated into three periods. The first was in the late 1970s to early 1980. Then gold went another quarter century with no record highs. It wasn’t until the financial crisis and the Fed instituted its zero-interest rate policy that gold broke out above its 1980 peak, and those new highs continued until late 2011. During Covid, gold briefly hit another all-time high but traded in a sideways range again through the end of 2023. This year, though, the pace of new highs has been coming in heavy with 36 – or about an average of once a week. Put another way, with 36 new closing highs this year, 14% of all the record closing highs in the price of gold have occurred this year.
Of the 36 record closing highs in the price of gold this year, six have occurred this September (through 9/24), and that has helped to move September into second place for the month with the largest number of new closing all-time highs. That’s nearly the opposite of the S&P 500 where September has been the month with the fewest record closing highs. The only month with more is August, but with just four trading days left this month, August’s lead is safe for this year.
The Closer – Energy Production, 5 Fed, Home Prices – 9/24/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a look into monthly energy production figures (page 1) followed by an update of our Five Fed Manufacturing Composite (page 2). Next, we look at the latest update of Case-Shiller home prices (page 3) and finish with a review of today’s 2-year note auction (page 4).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Daily Sector Snapshot — 9/24/24
Record Highs for Gold and Gold Positioning
As we do at the start of each week, in Monday’s Closer we recapped the latest positioning data from the CFTC’s Commitments of Traders report. In essence, this data highlights whether traders are in aggregate positioned long or short in various futures contracts. In the charts below, we show the historical net percentage of open interest net long (short) for gold and silver futures. Higher positive readings indicate that positioning is net long (more longs than shorts), while negative readings indicate that positioning is net short (more shorts than longs).
Last week’s data saw a number of big moves in commodity futures, but some of the most notable were in the precious metal space. For starters, silver rose to 41.5% net long. That makes for the most optimistic positioning since April 2017. As gold continues to trade at record highs, traders have gotten extremely long at 57.7%, which is a record high in this series dating back to 1986!
As shown above, last week’s record high in gold positioning isn’t the first of the year. So far in 2024, there have been five weeks with record highs. As shown below, that is the largest number of record highs since 2009 when there were six.
Again, the new high in gold positioning comes as gold itself is trading at record highs. In the chart below, we show the price of gold during the history of the Commitments of Traders data and plot each time that positioning was also at a record high. Of these occurrences since 2000, gold has usually been trending higher when gold long positioning reaches a record. That was also the case in the 1980s, albeit that was early on in the CFTC data’s history, and as such, back then the net long readings were significantly lower than they are now. The 1990s were a bit different as the strong reads on positioning came at a time when gold was sitting in a downtrend.
Bespoke Stock Scores — 9/24/24
Chart of the Day – Rate Cutting Cycles and Foreign Stocks
The Fed’s Quarterly Review of Household Wealth
The conventional wisdom in investing suggests that individuals should reduce their exposure to equities as they age. This strategy is based on the principle that younger investors have a longer time horizon and can afford to take on more risk, while older investors, nearing or in retirement, should focus on preserving capital and minimizing risk. However, the chart below depicting equity and mutual fund shares as a percentage of financial assets by age group reveals a notable deviation from this traditional approach. Surprisingly, it is the oldest cohort of investors—those aged 70 and above—that maintain the highest levels of equity and mutual fund exposure, with the trend intensifying over time. This data comes from the most recent quarterly Distributional Financial Accounts report from the Fed analyzing household wealth.
The discrepancy in equity market exposure for older and younger age groups can largely be attributed to the dramatic rise in the stock market over the past few decades, which has significantly boosted the wealth of older investors. However, it also underscores a broader trend: younger generations are notably underrepresented in equity markets. This is likely due to a combination of lower net worth, less savings, and perhaps even a more cautious approach to investing. Nevertheless, younger investors, with their longer investment horizon, should ideally have a higher proportion of their financial assets in equities to capitalize on potential long-term growth. We would note, though, that the <40 age group now has a slightly higher share of equity market exposure than the 40-54 age band, and the reading for sub-40 investors has skyrocketed since COVID while the 40-54 age group has merely trended sideways over the last ten years.
In a similar vein, you might expect older investors to have more cash in the form of deposits and money market funds than younger age groups, but it’s the sub-40 group that currently has the highest percentage of cash at 20.2% of financial assets. Back in the 90s, older investors carried much higher cash levels than younger investors, but that trend reversed in the years following the Financial Crisis. The sub-40 group has held the highest cash levels of any age cohort for 12+ years now. All things equal, we view it as bullish for the long-term health of the market that younger investors currently have lower equity exposure than most of their peer age groups and higher cash levels. It suggests there’s plenty of money out there ready to “Get Invested!” at some point.
The charts above were featured in our Closer report sent to Bespoke Institutional subscribers on 9/23. In addition to these two charts, we featured many more from the Fed’s latest quarterly report on household wealth that were quite interesting. If you’d like to read the rest of The Closer from 9/23 and gain access to everything else Bespoke publishes for investors on a daily basis, sign up for a Bespoke Institutional trial today.
Bespoke’s Morning Lineup – 9/24/24 – China Pulls Out a Lot of Stops
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Show me a hero, and I’ll write you a tragedy.” – F. Scott Fitzgerald
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
To see yesterday’s CNBC interview, you can just click on the image below.
Futures in the US are looking at modest gains this morning ahead of Case Shiller housing numbers at 9 AM and Consumer Confidence at 10 but the big news overnight came out of China where the PBoC announced several stimulus measures designed to boost the economy and the stock market. You have to check out the commentary section of today’s report for a full in-depth recap (you won’t find a better one). While the positive response by the equity market to the stimulus measures is more than warranted given the stops pulled overnight and could have some follow-through in the short term, we’re not quite convinced that “all” the necessary stops were pulled to make this the seminal event for a turnaround in the long-languishing Chinese equity market and economy
As mentioned, China’s overnight stimulus measures powered the Shanghai Composite to a rally of 4.15% for its best one-day gain since July 6th, 2020. As impressive as the gain was, it barely got the index above its 200-day moving average and only back to levels it traded at in late August. Since its recent high in May, the Shanghai Composite is still down 10%. You have to start somewhere, but Chinese stocks still have a way to go.
Looking at a longer-term chart, Chinese stocks have had some big bouts of volatility where they more than doubled in just a couple of years and then gave back all of those gains just as fast. What also stands out is how volatility in the country has subsided. Over the last five years, there have been just two one-day gains of 4%+ while in the five before that there were 14. Combining those two most recent five-year periods, there have been 16 one-day gains of 4% in the last ten years which is only slightly more than half as many as there were in the ten years before that (31)!
The Closer – Fedspeak, Additions, Net Worth – 9/23/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin by taking a look at the rough day for automakers and an update of Fedspeak (page 1). We also review the performance on new S&P 500 additions (page 2). Next, we take a deep dive into net worth data (pages 3 – 5). We finish with a preview of this week’s Treasury auctions (page 6) and positioning data (pages 7 – 10).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!