When the Bond Market Speaks – Listen!
By Eli Levy, Senior Analyst
AI IPOs
When I glue all these notes together my conclusion is that the burden will be on the bulls until we speak next week (the trader’s perspective is fade the rally). There is always an if; my if is NVDA — “sell on the news” is what the street says, but in this AI frenzy people are paying crazy forward multiples of sales for new IPOs such as Cerebras, and NVDA has the electricity to send this game into overtime.
Your best bet is to sit this one out until Friday and enjoy the show — let the market show us what’s going on. We don’t always need to get front row seats.
There’s a moment in every cycle when the bond market stops being background noise and becomes the story itself. We are in one of those moments. The G7 government bond yield complex just printed its highest reading in more than twenty years, and Dr. Torsten Slok at Apollo captured the diagnosis cleanly in The Daily Spark this week: this is not a one-factor move.
Energy Inflation
Four forces are pulling in the same direction at the same time — renewed inflationary pressure from elevated energy prices as the Middle East conflict disrupts global oil supply; persistently large government deficits requiring ever-increasing bond issuance; the end of central bank quantitative easing, with the Fed balance sheet potentially shrinking; and investors, finally, demanding higher term premiums and higher inflation premiums in a world that is visibly deglobalizing. None of those four are close to resolution.
As Slok puts it, the era of artificially suppressed yields appears firmly behind us — rates will stay higher for longer, and investors should plan accordingly.
G7
You can see the framework playing out tick by tick. Treasuries breached three levels at once into Friday’s options expiration: the 2-year cleared 4.00%, the 10-year cleared 4.50%, the 30-year cleared 5.00%. The breakouts were not just a U.S. story. Japan’s 10-year JGB printed its highest yield since 1997. The UK 10-year reached levels not seen since 2008. France’s 10-year took out its 2009 high.
When the entire G7 long end moves together like this, it stops being a national story and starts being a regime story. The proximate catalysts were easy to inventory — WTI crude up roughly 10% on the week to about $105 a barrel, no real progress on Iran, hotter-than-expected inflation readings, and the formal handoff to a new Fed Chair. But the underlying engine is what Slok described. The bid that suppressed yields for a decade is gone, and the new buyers want to be paid.
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