While most of China and HK were out on Lunar and Golden Week holidays the past week, the biggest news in macro was spike in global yields which saw 30yr treasuries yields touch 5%, 10y German bond yields touching 3%, and 10y JGB yields above 80bp.
This past week began with a line up of hawkish speakers for both the Fed and the ECB, emphasising along the lines of the last mile of inflation being the hardest to tackle, and the continued message that any expectations of policy easing to be premature; however, it was the release of stronger data that led to another mid-week 'taper-tantrum'-like spike in bond yields. Outside of a better than expected bounce in US ISM manufacturing, it was really the Wednesday bounce in JOLTS that shocked the markets into a risk-off move. Job openings bounced to 9,610k in August, significantly above forecasts of 8,815k, taking November hiking odds above 30% at one point, dragging 10y yields +12bp higher on Tuesday and the SPX -1.3% lower on the day.
Risk-markets have since seen a bit of a reprieve since, with ADP reporting much weaker payrolls growth in September (+89k vs +158k expected), retail sales data across Europe (-1.2% MoM vs -0.5% MoM expected), Citi credit card data out of the US (-1.3% MoM in 1st two weeks of September), and a 12% sell-off in oil futures putting a temporary halt to the bond sell-off. However, unlike the Fed-driven (policy tightening) sell-off over the past 24 months, the current yield move is driven via a bear-steepening, with the 2/10s curve dis-inverting back levels not seen in over a year. Despite the Fed nearing the end of their hiking campaign, investors are now simply demanding higher yield premiums and discount rates as we appear to be normalizing 15 years of ZIRP/QE excess in a hurry, especially with inflation pressures looking to stay in the long-run.
As we have alluded to a few times, the return of persistently higher funding rates will have profound impacts on macro asset classes across the board, as young investors venture their way into a '5%-riskless' world that they have never imagined before. Bank shares have dropped nearly 9% over the past month on concerns over portfolio losses on higher rates. Estimates of paper losses on banks' held-to-maturity portfolios are nearing $400bln and above the peak before the SVB collapse, while yields on 10y bond yields have exceeded implied SPX earnings yield for the first time since the early 2000s. Even the once-hot private equity funding world has plummeted back to 2020 levels based on executed deal volumes, as spiking borrowing rates have severely curtailed financing options and exit assumptions for the foreseeable future.
Unsurprisingly, the pressure on private capital has spilled over to crypto, where the industry saw the lowest amount of fund raising since late 2020. Furthermore, valuation and exit concerns have returned to the forefront, with ~90% of fund raised deals being in Seed stage or earlier, with projects predominantly based out of the US despite the regulatory headwinds.
