Morning Note: There’s Absolutely A Market For Treasuries

Increasing covid case numbers and lack of agreement on US fiscal stimulus has markets in a risk-off mood round the world. All but two of the 16 Asian equity markets we track closed lower overnight. Europe — seeing rising covid numbers and proposing new lockdowns — is red (19 of 19 markets we track) across the board. US major averages are all off this morning as well: Dow down 162 points (-0.57%), S&P 500  down -0.76%, Nasdaq down -1.19%, Russell 2000 down -0.66%.

The VIX (SP500 volatility) is of course rallying this morning, up 7.65%. VXN (Nasdaq vol), proving prescient of late, is up 3.53%.

Oil futures are down -2.46%, gold’s flat +0.04%, silver’s down -1.07%, copper futures are up 0.81% and the ag complex is down -0.50%.

The 10-year treasury is making sense this morning, trading higher (yield lower), while the dollar is having a big morning, +0.40%.

Our core portfolio, with banks, financials and gold our only winners, Eurozone equities, tech and Asia-Pacific equities being our biggest losers, is off 0.63% as I type. 

I’ll leave you today with a quick thought on the big picture macro setup going forward.

Here’s from last week’s macro update:

“The treasury will issue debt without restraint and the Fed will purchase it likewise, indefinitely.”

And here’s from Fed governor (and, yep, private equity investor) Randal Quarles yesterday:

“It may be that there is a simple macro fact that the Treasury market being so much larger than it was even a few years ago, much larger than it was a decade ago and now really much larger than it was even a few years ago, that the sheer volume there may have outpaced the ability of the private market infrastructure to support stress of any sort there,”

While it is precisely the scenario we foresee, my response to Mr. Quarles would be, “no!” There absolutely are plenty of  buyers of treasuries within the global private market infrastructure. It’s simply a matter of price, which is how markets are supposed to work, by the way. What Mr. Quarles actually meant is they wouldn’t like the pricing were they to allow markets (capitalism) to work.

Have a great day!


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