The bond market is signaling a shaky economic recovery, confounding investors. ~*~
The bond market is signaling a shaky economic recovery, confounding investors.
The stock market is already signaling a shaky economic recovery, confounding investors. The Dow is down 32% from its 2016 peak, and the Nasdaq and S&P 500 are off more than 30%. The bond market is also spooked. Most of the bonds issued by big U.S. companies were trading at record highs a year ago, but they are now trading at record lows. Even tech-heavy stocks are underperforming, with the Dow down nearly 20% from its summer peak.
For months, the yield on 10-year Treasuries has been falling, and it now stands at little under 1.3 percent. Credit… Associated Press/Frank Franklin II
Fears among stock investors that the economic recovery is failing, in part due to the development of the Delta form of the coronavirus, seem to have subsided.
Bond purchasers, on the other hand, are still nervous. The yield on 10-year Treasuries has been falling for months and is now just under 1.3 percent, its lowest level since February, when the economy’s outlook were considerably bleaker.
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A decrease in yields generally means slower growth ahead, which seems to be the case right now. Yes, the Delta variation has caused some reopening plans to be postponed, but the economy seems to be growing at a rapid pace overall. The majority of economists believe that growth in 2023 will be the greatest since the mid-1980s.
The yield on a ten-year US government bond
As a result, several Wall Street analysts believe the bond market is broken:
According to Vincent Deluard, a global macrostrategist at the institutional trading company StoneX, the long-held notion that bonds are better equipped to forecast the economy than equities doesn’t make sense in our present scenario. The Fed’s pandemic stimulus included a large dose of bond purchasing, which distorted the market. Target date funds, which invest in equities and bonds based on an investor’s expected retirement date, are also pushing bonds for reasons unrelated to the economy. Mr. Deluard stated, “I find it difficult to take seriously the bond market’s prediction that we will not have inflation and a hot economy.”
Another reason is that economic recoveries have been growing slower over time, according to Tom Atteberry, manager of the FPA New Income bond fund, one of the most conservative funds available. Growth peaked at approximately 5% in the 1990s, then slowed to 4% in the mid-2000s and 3% before the pandemic.
The major difference this time is that the government has spent billions of dollars to help the economy recover from a severe recession. What if that’s just a front to hide something truly wrong? What if the economy has already reached its limit? What if the new long-term ceiling is lower than the previous one? “But then I come back to ‘nah,’” Mr. Atteberry remarked after giving it some thought. “Rates will increase, and the economy will fare much better than it does now.”
In Flint, Michigan, line workers construct the chassis for General Motors pickup trucks. Credit… Getty Images/Jeff Kowalsky/Agence France-Presse
GM intends to halt production at three North American plants that produce highly lucrative pickup vehicles next week, indicating that the worldwide scarcity of computer chips is still causing problems for automakers.
G.M. has fared better than Ford Motor Company, which has shut down multiple North American truck and SUV factories this month.
G.M. said in a statement that its truck factories in Fort Wayne, Indiana, and Silao, Mexico, would close next week due to a scarcity of semiconductors, which are used as the computer brains in a broad range of electrical components.
According to G.M., a factory in Flint, Mich., will reduce its manufacturing shifts from three to one each day.
“The global semiconductor shortage remains complex and fluid,” G.M. said in a statement, “but our global purchasing and supply chain, engineering, and manufacturing teams continue to find creative solutions and make strides working with the supply base to minimize the impact on our highest-demand and capacity-constrained vehicles.”
CNBC has previously reported on the output cuts.
Both General Motors and Ford have been producing vehicles and SUVs without certain key components and keeping them at facilities until the necessary parts are available. In the car business, this method is referred as as “building shy.”
In the second quarter, General Motors idled several facilities, but it was still able to finish and transport 20,000 cars that had been built without some components.
Because of production halts caused by the chip shortage, the carmaker projected its earnings would decrease to about $500 million in the second quarter, down from more than $3 billion in the first. However, it said in June that its first-half financial performance would be “much better” than expected.
The chip shortfall is expected to alleviate in the second half of 2023, according to automakers. On Wednesday, Ford will release its second-quarter results. On August 4, G.M. will release its report.
Ford has faced more severe problems as a result of its reliance on a chip manufacturer that had a fire at a facility in Japan. Both General Motors and Ford have attempted to alleviate the shortfall by assigning chips to factories that manufacture their most popular and lucrative cars and delaying output at plants that generate slower-selling models.
The shortfall is stifling manufacturing at a time when demand for new and used cars is high and financing rates are still low.
Due to delays in car manufacturing, dealers now have limited inventory, forcing many customers to pay close to list prices for new vehicles.
Auto dealers have benefited from the circumstance. AutoNation, a major dealership network, announced its sixth consecutive record quarter this week.
In Miami, the headquarters of the information technology company Kaseya. Reuters/Kaseya/Kaseya/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/
Kaseya, the Miami-based firm that was at the heart of a ransomware assault that affected hundreds of companies during the Fourth of July holiday weekend, said on Thursday that it had received a key that would allow clients to regain access to their data and networks.
The company’s acquisition of the key remains a mystery. Kaseya merely said that it received the key on Wednesday from a “third party” and that it was “effective in unlocking victims.”
The development is one of the latest mysteries surrounding the Kaseya attack, in which a Russia-based ransomware group known as REvil, short for Ransomware Evil, breached Kaseya and used it as a conduit to extort hundreds of Kaseya customers, including grocery and pharmacy chains in Sweden and two Maryland towns, Leonardtown and North Beach.
The assault triggered White House emergency briefings, prompting Vice President Joe Biden to contact Russian President Vladimir Putin and demand that he handle ransomware threats emanating from inside his borders.
REvil went offline only a few days after the call. REvil’s “Happy Blog,” which published emails and data taken from REvil’s ransomware victims, was no longer active. Its payment platform has vanished. Its most well-known members mysteriously vanished from cybercrime forums.
It’s unknown if REvil went down on its own initiative or at the request of the Kremlin, or whether the Pentagon’s Cyber Command hackers were involved. But it was a setback for Kaseya’s victims, who were still trying to reclaim their data when their extortionists disappeared.
Kaseya’s revelation that the key had been found was a pleasant surprise. When ransomware organizations do provide victims with decryption tools after they have fulfilled their extortion demands, the tools are often sluggish or useless. However, Brett Callow, a threat researcher at EmsiSoft, a security company that works with Kaseya, verified that the decryptor was “effective” in this instance.
Julie Turkewitz and José Mara León Cabrera provided reporting.
Last summer, I moved to New York. “Prices will continue to rise in the near term,” said Igor Popov, an analyst with Apartment List. The New York Times’ OK McCausland is to thank for this.
The rental market, which had plummeted during the epidemic, has rebounded faster than many analysts anticipated, and tenants throughout the nation are experiencing sticker shock.
The New York Times’ Coral Murphy Marcos, Jeanna Smialek, and Jim Tankersley write that demand for apartments and single-family rentals is recovering — and even looking hot in certain areas.
If rents continue to rise, it may be terrible news for both people looking for a place to live and the country’s inflation forecast. Because rental prices have such a large impact on the Consumer Price Index, a significant increase in rent may help keep that carefully monitored government price gauge, which has recently risen significantly, higher for longer.
According to Zillow statistics, rents in the United States increased 7% last month compared to a year ago. This was compared to a poor June 2023, but it was still a strong 1.8 percent increase from May.
Rent and “owners’ equivalent rent” — which analyzes rental data to estimate how much homeowners would pay for housing if they hadn’t purchased a house — account for almost a third of the Consumer Price Index. Both move slowly, but they are defying predictions that they would need a long time to recover.
The renting experience varies depending on the market. According to Zillow statistics, rents have risen quickly in areas like Boise, Idaho; Spokane, Wash.; and Phoenix, while major cities on the coasts have lagged. Rents in New York and San Francisco are rapidly rebounding, although they are still lower than they were two years ago.
The bond market is signaling a shaky economic recovery, confounding investors. The U.S. economy is recovering, but the market for U.S. Treasury bonds isn’t following suit. The bond market’s assessment of the economy has been one of the best indicators of economic health. Since the last recession in 2008, the market has been signaling a recovery, and the S&P 500 has gone on to rise by a collective 60%. But in the last year, as the U.S. economy has been showing signs of recovery, bond prices have been going down, and the yield on the 10-year Treasury note has been rising.. Read more about what will happen to bonds and let us know what you think.
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