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Colossal Losses, Impact of Fed Rate Hike in the Market

One of the most popular bond indices, the Barclay’s U.S. Aggregate, has a market value of $17.9 trillion today. This compares to a market value of $8.3 trillion at the time of the last Fed rate hike on June 29, 2006. A look around the world is an eye opener; the Barclay’s Global Aggregate has a market value of $47.2 trillion versus $21.9 trillion on June 29, 2006.

Some of this is already priced in of course, but the quick and dirty calculation tells you that for the U.S. Agg, a 25bps hike has 2.53x the impact of a 2006 era move and for the Global Agg, the impact is around 2.36x a 2006 era move in terms of the value of immediately re-priced assets. This gives the adage ”interest rates up, bond prices down” profound new meaning.

Put another way, the amount of losses by global bond investors in percentage terms for a given hike in rates is around 2.5x as powerful as it was the last time the Fed hiked rates over nine years ago. So might 25bps act a bit more like 62.5bps? When will we find out?

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“Yesterday, the U.S. 10 year hit our long held 1.40% target. A sea of bond bears has become an ocean of bulls. On January 1st, Wall St’s mean forecast for the U.S. 10 year was north of 2.85% (1.36% today). Brexit’s risk to the global economy has created an opportunity for those willing to step in and short bonds in the face of a large group of clowns rushing to the exits (abandoning their long held bearish bond positions).”
Bear Traps Report, July 6, 2016

You can’t make this up.  Coming into 2016, Wall St. was calling for 4 rate hikes and a 2.85% ten year bond by year end.  After oil’s plunge to $26, China’s currency devaluation and June’s Brexit. the Street lowered their outlook for the U.S. 10 year to 1.40%, yields touched 1.32% in June.  Today, U.S. 10 year bonds yield 2.25%, hat’s off to the gang that can’t shoot straight.

*U.S. TWO-YEAR YIELD RISES ABOVE 1% FOR FIRST TIME SINCE JANUARY
Routs in global bonds and emerging markets intensified, while the dollar climbed with European stocks and base metals as investors positioned for the wave of fiscal stimulus that Donald Trump has pledged to unleash.

Italy’s 50 Year Bond, Just a 15% Plunge in a Month

The yield on 30-year Treasuries rose above 3 percent for the first time since January, with last week’s record debt selloff bleeding into Monday trading and weighing on credit markets. The Bloomberg Dollar Spot Index advanced to the highest since February as the U.S. currency strengthened versus almost all its major counterparts. While European shares rose to a two-week high and U.S. equity index futures gained, stocks in developing nations sank to a four-month low. Copper headed for the highest close in 16-months and gold fell. – Bloomberg

U.S. 2 Year Bond Yield Soars Past 1%

On Friday our Larry McDonald joined CNBC to make the cast for the Biotech IBB ETF.

Here’s our latest:

*FED DECEMBER RATE HIKE ODDS DROP BELOW 50%, SWAPS DATA SHOW

*OIL NOW 17% OFF THE OCTOBER HIGHS

*DONALD TRUMP PROJECTED TO WIN NORTH CAROLINA: NBC

*DONALD TRUMP WINS FLORIDA, EXTENDS ELECTORAL COLLEGE LEAD

*TREASURIES RISE, 10-YEAR YIELD FALLS MOST SINCE BREXIT TO 1.74%

Democrat Hillary Clinton and Republican Donald Trump were locked in a tight race Tuesday evening for the critical battleground state of Florida, with the billionaire businessman’s White House prospects hanging in the balance.

With 93 percent of precincts reporting, Trump was leading Clinton 49.2 percent to 47.7 percent.

*MEXICAN PESO DROPS MORE THAN 3%, PAST 19 PER DOLLAR

Stocks plunged globally as Donald Trump has moved into a position of control over the race for the White House.

Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here

U.S. 2016 Election Electoral Votes

Trump 51
Clinton 44

*REPUBLICANS MAINTAIN CONTROL OF HOUSE OF REPRESENTATIVES: NBC

*YOUNG WINS SENATE RACE IN IND.; REPUBLICANS HOLD SEAT

*RUBIO WINS SENATE RACE IN FLA.; REPUBLICANS HOLD SEAT

*PORTMAN WINS SENATE RACE IN OHIO; REPUBLICANS HOLD SEAT

Republican Donald Trump and Democrat Hillary Clinton kicked off easy and expected wins as states began closing polls with results from several crucial battlegrounds still outstanding.

Trump won in West Virginia, Indiana, South Carolina, Tennessee, Oklahoma, Mississippi and Kentucky, all reliably Republican states. Clinton was the victor in a group of Democratic-leaning states including Illinois, New Jersey, Maryland and Vermont, according to projections based on vote counts and exit polls by television networks and the Associated Press, Bloomberg.

GOP on Track to Keep the Senate

Republicans scored two key victories in the critical battle for control of the Senate, with Marco Rubio of Florida winning re-election and Representative Todd Young defeating Democrats’ star recruit, former SenatorEvan Bayh.

But Democrats gained a seat in Illinois as Representative Tammy Duckworthdefeated incumbent Mark Kirk, according to media projections.