Rising US Bond Yields

The noise

• Yields across the US treasury market have all crossed the 4% mark, as 30 year yield rose to the highest level since November on Thursday. The two year treasury remains the highest yielding Fed note or bond, reflecting expectations that the Fed’s interest rate increases are sowing the seeds of an economic slowdown.

• China’s economy is showing signs of a strong rebound following the first comprehensive data release since Covid restrictions were lifted in late 2022. The manufacturing purchasing managers’ index rose to its highest level since April 2012, with services activity climbing and the housing market stabilising. This has been reflected in the Hang Seng Index, rising 4% on Wednesday, the same day that Hong Kong ended its 945 day mask mandate.

• Arm Ltd, a British semi conductor and software design company has ruled out an IPO on the London Stock Exchange, vying instead for a US listing. This deals a blow to the UK’s ambition to develop itself into a ‘tech hub’ for the global economy post Brexit. The valuation range for the IPO is from $30 billion to $70 billion, and will be one of the most coveted for 2023.

​The numbers

The nuance

This week saw a further rise in bond yields as investors questioned whether the planned interest rate hikes would be sufficient to tame consumer price inflation, which is running faster than the estimated terminal fed funds rate. Analysts started to consider if the pace of tightening would pick up with a half percent hike being considered for the next move. Interest rates have been held at zero for over a decade, and although this is very much an abnormal condition, the recency and duration has formed society's expectations. Indeed the focus of the discussion around the terminal interest rate tells us that no one is really considering the possibility that interest rates might stay high on a more permanent basis. These higher interest rates are seen as a temporary solution to bring inflation under control, despite the fact that a cursory glance at history would show them as a fairly normal level of interest.

While we don’t have a crystal ball, we keep an open mind and recognise that a higher cost of money has implications for share buy backs and business models dependent on cheap financing.  Equally bond holders will be rewarded by a higher ongoing interest rate rather than capital appreciation from falling yields. 

Quote of the week

“A joint international effort is being launched towards achieving a common lunar reference time”
Pietro Giordano
European Space Agency

With more lunar missions than ever on the horizon, the European Space Agency (ESA) wants to give the moon its own time zone.

The idea was brought up during a meeting in the Netherlands late last year, with attendees agreeing that there was an urgent need for an established “common lunar reference time”.

Currently, lunar missions run on the time of the country that is operating the spaceship. As more countries and even private companies start aiming for the moon, the ESA argues that an internationally accepted lunar time zone would simplify things for all.

An issue to consider will be that clocks run faster on the moon than on Earth, gaining about 56 microseconds each day. Another complication is that ticking occurs differently on the moon’s surface than it does in orbit.

Most importantly, lunar time will have to be practical for astronauts there. This will be quite challenging with each day lasting as long as 29.5 Earth days.

Source: Associated Press





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