Episode summary
Dylan Jovine | The Bond Market Can No Longer Be Ignored
Summary
Treasury yields have climbed back to levels the host says investors cannot ignore, with the 30-year Treasury yield at 5.12% and the 10-year at 4.59%, the highest in 12 months. He argues that higher yields act like a ceiling on stock prices and pressure equities, bonds, house prices, and other assets through a gravity-like relationship.
He also says the market’s earlier expectation for Federal Reserve rate cuts has faded sharply, with betting markets now implying only a 27% chance of a cut this year and even some odds of a hike. In his view, CPI and PPI remain key because rising inflation keeps pushing costs higher for producers and consumers, which supports the bond market’s warning signal.
The host frames the current environment as a difficult middle phase between obvious bull and bear markets, where investors should think in probabilities rather than certainties. He says the risk of a bear market or sharp market crack has risen to 40% from 20% to 25%, and he adds that unresolved Iran tensions could add another source of selloff risk. His response is to favor best ideas only, trim speculative positions, and prepare portfolios for turbulence rather than chase risk.
Key takeaways
- The host says the 30-year Treasury yield at 5.12% and the 10-year at 4.59% are now high enough to matter for stocks.
- He argues the bond market is forcing the Fed to look less likely to cut rates, with only a 27% chance of a cut this year.
- The host says inflation readings like CPI and PPI still matter because they keep feeding pressure into yields and asset prices.
- He says the risk of a bear market or market crack has risen to 40%, so investors should tighten portfolios and trim speculative bets.
- The host expects geopolitical risk, including Iran tensions, to increase market volatility if military action escalates.
Notable quotes
“the bond market can no longer be ignored, and we've been kind of, you know, lucky for the past few months”
“the 30-year US Treasury yield is up to 5.12%, which is near 20-year highs”
“The 10-year yield, which concerns us more specifically as stock investors, is up to 4.59%, which is the highest in 12 months”
“Now we see a 27% chance of a Fed rate cut this year, and lots of betting that the Fed will in fact raise rates”
“As I discussed last week, where risk was of a bear market or a crack before 20 25%, it is definitely up to 40% now”
How the episode opens
Good morning. This is Don Giovanni with Behind the Market Topic, Tuesday. Today is Tuesday, May 19th.
I love getting here super early in the morning before anybody else is here, and I beat the lady who's competing with me from a couple doors down for that spot right in front, and we go back and forth, and she's been beating me all last week cuz I was sick and not feeling so great. I wasn't getting here as early. I'm just happy that I beat her for the best spot.
Anyway, the headline of the day is Treasury yields are back at levels that matter for stocks in your portfolio. We basically the bond market can no longer be ignored, and we've been kind of, you know, lucky for the past few months we haven't had to talk about this, but if you've been listening to this channel for any length of time, you know that we talk about this quite a bit. The bond market now is going to be part of our regular rotation.
I'm like a DJ where this song is going to be part of the deal. So, we have the 30-year US Treasury yield is up to 5.12%, which is near 20-year highs. I can lend the government money, buy bonds for 30 years, and they'll pay me 5.12% a year.
The 10-year yield, which concerns us more specifically as stock investors, is up to 4.59%, which is the highest in 12 months. So, these are high, and remember, yield prices act as a ceiling stock prices. They exert the biggest gravitational pull to equity.
So, yields go down, equities go up. Yields go up, stocks go down. All asset prices go down.
There's a seesaw relationship between yields on debt, government debt, and stock prices, and all bond prices, and all asset prices, house prices, everything like that.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- treasury yields
- federal reserve policy
- inflation cpi and ppi
- stock market risk
- geopolitical risk iran tensions
Watch the episode
Watch “Dylan Jovine | The Bond Market Can No Longer Be Ignored” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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