10-yr treasury trades through 5.0%

Long-term interest rates continued to trade higher this week, with the 10-yr note trading through the psychological 5% level late Thursday before retreating back below. The 30-year bond settled comfortably above 5%. The march higher in interest rates continued to put pressure on stocks, as the S&P 500 lost over 2% for the week and the NASDAQ almost 3%.

• Long-term US treasuries rates are the basis for financing costs in the economy
• Higher rates are a headwind for the consumer as they mean higher mortgage and credit card rates
• They are also a headwind to companies with debt as their interest costs rise
• Higher interest rates also affect the value of future cash flows for companies
• The higher the interest rate used, the less the present value of future cash flows are
• Hence higher rates tend to affect growth companies more on the margin as their cash flows are expected to be larger farther out

Twelve Federal Reserve speakers

No less than twelve officials from the Federal Reserve made speeches or appeared on the news this week, including Chairman Jay Powell. Officials are likely getting ahead of a blackout period which begins this weekend. The common thread is that most officials feel that a continued pause is warranted. The other common thread is that inflation has shown signs of moderating, but the Fed is not ready to declare victory.

• While the market is always attentive to any updates from Fed officials, we don’t think this is what has been driving risk assets recently
• The incremental 0.25% hike is not significant given the prior 5% of hikes
• Markets seem to be more focused on long-term interest rates, which the Fed does not directly control
• Some officials noted that the rise in long-term rates does some of their work for them
• However, Jay Powell also noted that they did not believe the recent rise in long-term yields was related to inflation expectations or short-term rates
• That leaves the explanation that investors are demanding a higher rate of interest to hold US long-term debt
• Some have compared this to the bond vigilantes of the 1980s, which forced the Clinton administration to reduce the deficit

Bitcoin trades to $30k

Bitcoin (BTC) traded near $30k this week, rising over 10% for the week. There was some positive news last weekend when the SEC announced they would not pursue an appeal in their case against GBTC. Then, on Monday, there was a false news leak that the SEC approved the Blackrock spot ETF. Even after this was denied, BTC traded at elevated levels. At the end of the week, we heard the SEC was dropping its suit against the founders of Ripple, which the market also took as positive.

• Bitcoin trading higher for the week, as other risk assets sold off, is a positive sign
• As we have discussed before, in the last cycle, BTC traded along with risk assets such as high-growth tech stocks
• The current untethering from risk assets could be a sign of the maturity of the market
• It could also mean the market is fairly convinced that a spot BTC ETF is imminent
• Either way, we still lack a common-sense regulatory framework to help govern the digital asset space