Yields up

The U.S. treasury auctioned 3 and 6 month T-bills yesterday, and both increased their yield enough to raise some eye brows. The 6 month bill is paging you now an annualized yield of 3.84% (from 3.68%). The 2 year Treasury bond real yield is now above 2%, with inflation ramping up. Investors are starting to realize that Mr Warsh is right; inflation is a choice, and we’ve chosen to live in a more inflationary world. Yields are just adapting to the new reality. Absent a recession, which could be induced by a sustained closure of Hormuz, official rates and bond yields are going up. And of course that only means that stocks will need to work harder to remain attractive. That also means that debt service will be higher, since $9 trillion out of the $39Tn in debt, are in instruments with less than 1 year of duration, and all of them are affected by these auctions. Let’s see what the newly created Fed’s task force teams say about inflation and the economy, but it appears that the market is already talking to them.

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