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“Beware the Ides of March.” – Shakespeare, Julius Caesar
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Futures are down sharply this morning, but surprisingly it has nothing directly to do with issues facing a US regional bank. Today’s weakness is due to a 30% plunge in Credit Suisse as its largest shareholder said it will no longer put additional capital into the bank. Dow futures are down over 600, the S&P 500 is indicated to open down 1.7% and the Nasdaq is holding up better with a drop of 1.4%. It’s been a busy morning for economic data as PPI missed expectations, Empire Manufacturing plunged, and Retail Sales were in line with forecasts. European stocks are down well over 2%, and Treasury yields are plunging. The only risk asset rallying on the day, at this point, is bitcoin.
As we type this, the two-year yield is down over 20 basis points (bps) and below 4% again in what can only be characterized as a turbulent move. If you were on an airplane, you’d be asking for another one of those white bags that they keep in the seat pocket in front of you. Today’s move is on pace to be the fifth straight day that the yield has moved more than 20 bps (up or down) in a single day. To put that move in perspective, the only other time that the two-year yield has had as many 20 bps moves in succession over the last 45 years was in December 1980. Outside of the early 1980s, there has never been another time when the yield on the two-year even moved 20 bps for three consecutive days. Two-year Treasuries have always been one of the most stable assets across the financial spectrum, but they’ve failed on that front lately.
The current moves in the two-year treasury stand out even more when you consider the actual level of yields. Sure, the last year or so has seen yields rise to the highest level since 2007, but in the early 1980s, which was the last time there was as much volatility in two-year yields as there is now, yields were more than double where they are now. Double. The Fed has gotten a lot wrong in their forecasts over the last few years, but one point where Powell was spot on was last August when he said that fighting inflation will “bring some pain”. He should have just come out and said, “Beware the Ides of March.”
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