Boockvar’s Odds and Ends … and Bonds
The following is from Peter Boockvar:
Just a few things but certainly notable
I will be taking Thursday and Friday off but will still deliver my Succinct Summation on Friday.
The bond yield momentum continues higher, most notably today in Europe with 5-7 bps moves up. The UK 10 yr gilt yield is now up 22 bps in two days to 5.28%. The French 10 yr yield is up by the same 22 bps over the past 6 days to 4.28%. Similar moves too throughout the region. This is not because European growth is strong, it’s about 1%. I believe it’s due to worries about their large financing needs and inflation concerns that the ECB will confront with another rate increase next week all at the same time investors want to hold less long duration bonds. With the BoE, the swaps market has about a 2/3rds chance of one hike this year.
With respect to the US 10 yr yield, clearing the 4.81% would leave us with no technical resistance until we retest 5% which we touched for a day in October 2023 and something I find inevitable at this point.
The yen is getting a bid to back below 160 as BoJ board member Hajime Takata, who happens to be hawkish so maybe speaking his viewpoint rather than the committee, alluded to the possibility of hiking rates even more than 25 bps in a few weeks, maybe even 50 bps. “I can’t say at this stage whether it is .5 percentage point of 75, but as I have been repeating, the environment has changed.” I’d be quite shocked if they raised more than 25 bps but I do believe the 25 bps rate increase will be followed with further hawkish talk from Governor Ueda and that 2% is their ultimate destination with the overnight rate vs 1% today.
The 2 yr JGB yield jumped 7 bps to 1.87% on those comments, a fresh 31 yr high.
The Reserve Bank of New Zealand by the way hiked rates by 25 bps to 2.75% but as expected. Governor Breman said “It’s likely that there will be a further increase in the OCR. But the timing is highly uncertain because we will consider the effects of the two hikes that we’ve done now, and also all the new information that’s happening and how that is affecting the medium-term inflation outlook.”
Finally here, keep your eye on commodity prices as the Bloomberg Commodity Index (BCOM) closed yesterday at a 14 yr high. We remain long oil and gas stocks, precious metals including platinum, fertilizer stocks as well as those producing uranium as our plays on this bull market that I believe has a ways to go.
10 yr Gilt Yield
US 10 yr Yield intraday
2 yr JGB Yield
Yen
Bloomberg Commodity Index
As the cost of capital is rising along the yield curve, I do want to highlight again the spread widening that is going on at the CCC level of high yield as it now approaches the level it touched in August 2024. The spread is now 947 bps. It touched 1200 bps at the height of the tightening cycle in 2022.
CCC Yield Spread
The MBA said purchase applications rose 2.2% w/o/w after slight declines over the prior two weeks and are flat y/o/y. Refi’s fell 1.1% w/o/w and down 19% y/o/y. The average 30 yr mortgage rate was 6.79% as of 8/28, up 1 bp w/o/w but the US 10 yr yield has risen by almost 10 bps since.
Dell had a blowout quarter with big upside in its guidance as they are center stage, along with the semi companies, receiving a chunk of that massive GenAI CapEx spend and selling the boxes in which those chips are going into. From them:
“Customers no longer see IT environments simply as cost centers, but as value drivers that enable growth, productivity, and competitive advantages. As a result, they are expanding and reallocating budgets to support continued investment.”
“Over the past 12 months, we have booked more than $130 billion in AI server orders…We booked $60.9 billion of AI orders in this quarter, the most in our history. We are also seeing AI-related tailwinds in traditional servers and networking, along with early signs of increased storage demand as customers prepare, manage, and protect growing volumes of data.”
Palo Alto Networks had a great quarter too but down pre-market as some don’t believe they can accelerate growth from current levels. They said of note:
“This performance is a direct result of record-breaking platformization adoption and the growing urgency among customers to fortify their defenses as AI fundamentally redefines the security landscape.”
“As I have said before, AI is a long-term tailwind for cybersecurity. While these models are becoming increasingly proficient at uncovering vulnerabilities, detection is merely the opening act. Truly validating, interpreting context, and resolving these issues requires broad cybersecurity platforms working alongside frontier AI. This synergy is essential to stress-test environments, manage agentic actions, and trigger machine-speed remediation during an active threat.”
Positions: None.
