Rising US yields

US 10 year government bond generic yield

10y bond yield 2018-10-04

Source: Bloomberg

Steeper yield curve in the US

US 3 months vs. 10 years yield curve

us curve 2018-10-04

Source: Bloomberg

Better economic numbers

ISM Non-Manufacturing Sept 2018

ISM 2018-10-04

Source: Institute for Supply Management, Bloomberg

All this unsettles the equity markets. Too much good. It is easy to argue that the good time will not last and the correction in equity markets will finally happen. All so true.

The time is the hard issue. Timing has always been a challenge especially in bull markets. The time tested indicators may be flashing some yellow warning signs. However, as so often they may be early not by weeks buy quarters. Just entering some of the best period in the market history.

Fourth quarter of a calendar year till the end of the second quarter are generally strong.

This period particularly into the pre-election year shows even stronger performance.

season 2018-10-04

Source: Oppenheimer & Co., Bloomberg

Well behaved Federal Reserve with clearly communicated policy.

Global central banks showing tolerance for higher inflation.

Trade disputes making it all look sour is arguably a long shot.

Markets are afraid of the news to their own peril. Fundamentals last longer than news.


About inflation. It appears that the deflation discussion of the yesteryears left such strong marks on the politicians, central bankers and market participants that nobody cares about the current inflation trends. The discussion moved comfortably from “we want to fight deflation” to “we have a very moderate core inflation so….”. Core inflation shall be the topic of one of the upcoming deliberations.

Now every normal consumer and business person does understand inflation as rising prices. Obviously rising prices are here and everyone will be able to easily show that from butter to oil any prices we can think about increased. The younger may rather point to the stellar price increases of the new iPhone.

Now central bankers appear to be very content with the running rate of consumer inflation as long as the core inflation is not rising. Just by the way, the vast majority of the consumer will not really understand the concept of the core inflation. The prices which touch our daily life are obviously rising.

Now even conservative central banks of Norway and Sweden abandoned their long standing conservative stand on interest rates and inflation. Inflation does not matter. It now moves into the realm of aberration and will come back soon enough to some kind of “normalised” level. Even if not we clearly can rely on past experience. Central banks can use their historically proven ability to quash inflation by using a wide arsenal of monetary instruments.

Inflation trend in USA, Germany, Japan, Sweden and Norway

CPI 2018-09-25

Source: Bloomberg

10 year government bond yields (generic) in USA, Germany, Japan, Sweden and Norway

10 Year yields 2018-09-25

Source: Bloomberg

Federal Reserve appears to be exception as the sanity of the market maintained its focus on inflation and normal relationship between long-term interest rates and inflation. Apart from short-term blips the real rates stayed positive.

Real interest rates (CPI minus 10 year government bond yields (generic)) in USA, Germany, Japan, Sweden and Norway

Real rates 2018-09-25

Source: Bloomberg

Once the normalisation of real interest rates in Europe and Japan will begin, the pain could become extraordinary. In some respects the 10 year interest rates would need to rise by 140 BP in the case of Germany or even by 300BP plus in case of Norway. The time will tell how those countries can stomach such major interest rate increases. So far the markets enjoy the ride and destruction of value for any bond investor in Europe and Japan.


Das ist nun ein beliebtes Spiel bei den Zentralbanken und Investoren gleichermaßen. Sie muss doch irgendwo sein.

Die Ölpreise haben sich stabilisiert oder sogar über den Zeitraum von einem Jahr sind sie angestiegen. Zwar wirken sich oft in der Geschichte die Ölpreise eher als Nachfragehemmend und nicht Inflationssteigernd aus. Nichtsdestotrotz werden die Energiepreise in der letzten Zeit als Preistreiber hingestellt.

Preisentwicklung des WTI Futures

CL1 2017-08-02

Quelle: Bloomberg


Die Rohstoffpreise steigen weiterhin. Es sind nicht nur die industriellen Metalle. Der breite Rohstoffindex steht nah an den Höchstständen seit Dezember 2014.

Commodity Research Bureau BLS/US Spot All Commodities

CRB 2017-08

Quelle: Bloomberg

Die Inflationszahlen haben nur kurzfristig den magischen Wert von 2% gesehen. Warum gerade 2% ist und bleibt eine Diskussion wert. Jedoch bewegen sich die unterschiedlichen Inflationszahlen in der gleichen Spanne seit 2009. In dieser Zeit sah sich die EZB nicht unbedingt genötigt die Zinsen zu ändern, obwohl wir bereits in den Jahren 2011/2012 bereits höhere Inflationszahlen gesehen haben.

Euro Region Inflation, Inflationszahlen Deutschland und Eurostat Eurozone Kerninflation

CPI 2017-08

Quelle: Bloomberg


Diese Inflationserwartungen treiben die europäischen Inflationsanleihen in die Höher. Gleichzeitig, interessanter oder ungewöhnlicher Weise, werden trotz steigender Inflationserwartungen auch die nominal Anleihen beflügelt als ob steigende Inflation keinen Einfluss auf die Zinsen hätte. Diese parallele Entwicklung dürfte früher oder später auf die Probe gestellt werden. Beide können nicht gleichzeitig Recht behalten.

Bloomberg Barclays Euro Government Inflation-Linked Bond Index All Maturities und eb.rexx German Government Bonds Performance Index

BEIG1T 2017-08

Quelle: Bloomberg