10-year yields continue lower

The yield on the 10-year note continued lower, hitting 4.1% before trading a bit higher to end the week. Just six weeks ago, the 10-year yield was surging and threatening to break through 5%, a level not seen since 2007. The large move lower since the recent peak is due to continued conducive economic data, including a falling rate of inflation and a marginally softer job market. The futures market is now pricing in up to 1.25% of Federal Reserve interest rate cuts for 2024.

• While lower rates are good for risk assets, it is important to keep in mind the longer-term context
• The 40-year trend lower in interest rates has been broken over the past 24 months
• The futures market for rates was also pricing in cuts in 2023, which ended up being incorrect
• The Federal Reserve has avoided discussing cutting interest rates yet

Bitcoin trades through 44k

Bitcoin traded through $44,000 this week for the first time since the summer of 2022. The move coincided with a brief gold price surge during Asian trading hours on Sunday night. While gold reversed lower during US market hours on Monday, Bitcoin continued to trade higher and remained close to $44k at the end of the week.

• One of the most common use cases discussed for Bitcoin has been digital gold
• Gold is widely regarded as a hedge for the decline in the value of fiat currencies
• Bitcoin has historically not traded in this fashion, instead trading more like a risk asset
• The recent surge higher in both gold and Bitcoin is reviving the digital gold narrative for the emerging asset

Jobs number strengthens soft landing narrative

The US employment report showed surprising strength in November, with the US reporting an additional 199,000 jobs and a surprising fall in the unemployment rate to 3.7%. Wage growth came in at 4%, as expected. Combined with a lower-than-expected JOLTS (job openings) report earlier in the week, these numbers were hailed as yet another confirmation of a potential soft landing for the economy.

• A soft landing entails falling inflation, a cooling of the economy, but no recession
• This would be the ideal environment for stocks and other risk assets
• While the probability of a soft landing has increased, it has only been achieved once in the prior 30 years, in 1994