Reassessing when and to what extent rates will be cut is a weekly affair at present. But 10-year Treasury yields just broke higher to confirm support in the region of 4%. A clear downward dynamic will be required to question scope for additional upside, writes Eoin Treacy, editor of Fuller Treacy Money.
The jump in bond yields will increase the cost of mortgages. That will mitigate future inflationary pressures, which is a good example of the seesaw effect on rates and inflation at current levels.
Insurance costs are also a major source of inflationary pressures for most consumers. The higher bond yields go, the greater the pressure on insurance companies to preserve margins by hiking premiums. I wonder when the sector is going to run into resistance from consumers who are likely to rebel against higher premiums by degrading their level of coverage.
The potential for a further delay in the beginning of an easing cycle further reduced enthusiasm around the “no landing” consensus. The S&P 500 gapped lower off the open to confirm at least near-term resistance in the region of the psychological 5,000 level. It is reasonable to expect a somewhat lengthier pause in this area amid the short-term overbought condition.
