Long-term interest rates plateauing

Explains some of the recent rebound in tech stocks

Chart of the Day

US bond yields generally fell yesterday and interest rates have plateaued or even dropped back across the curve. The 5-year interest rate swap has dipped back below 1%, and both the 5-yr/5-yr and 10-yr/10-yr swaps, representing interest rates from 2026-30 and 2031-40 respectively, have edged back in recent days. Signs that long-term interest rates are plateauing or even falling might help to explain why tech stocks have been doing well, although could also be a sign that bond investors are concerned about the global outlook following the worsening Covid outbreaks in many countries.

Macro

The Job Openings and Labor Turnover Survey showed that the job openings increased by 3.8% MoM in February, to 7.4 million, which is higher than before the pandemic.

The eurozone unemployment rate was unchanged at 8.3% in February.

The RBA kept its policy rate unchanged at 0.1%, which means it is near -1% in real terms. Inflation-adjusted policy rates range from a low of -3.2% in Norway to a high of 4.1% in China.

Markets

Alongside the recovery in equities, the USD has depreciated against most currencies in the past week, the main exception is the Russian ruble following the drop in oil prices.

Both the euro and GBP are still below key values of 1.20 and 1.40 respectively.

It’s not just the US where interest rates are tailing off. The 10y-2y curves have been steady across the UK, Germany and Canada as well.

The copper/gold ratio would normally be consistent with a higher US 10-year bond yield.

While US junk-rated corporate bond yields have fallen by 11 bp in the past month, investment-grade yields have risen by 7 bp. In other words, junk-rate firms face very generous financing conditions at the moment.

The Baltic Dry Index has fallen by 0.5% in the past week but is still up by 12.9% in the past month.

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