This has been a week of highs. Stock prices hit a record high on Thursday and is now up more than 100% since the March 2020 low. Bitcoin hit a record high near $67,000, up more than 100% in just the last 3 months. The price of crude oil hit $83.37, the highest level since 2014 and up 130% in the last year. Surprisingly, all these recent or record highs came in a week of relatively weak economic data. Industrial Production unexpectedly fell 1.3% in September as supply chain issues continue to constrain the manufacturing sector. Housing Starts and Building Permits both fell more than expected in September with the latter down 7.7% in a sign the red-hot home building market may be starting to cool. Not coincidentally, the Mortgage Bankers Association reported Wednesday that mortgage applications fell 6% as surging mortgage rates have pushed refinance activity down 24% since August. But despite the bad news for Housing Starts, Existing Home Sales rose a stronger than anticipated 7% in September suggesting record high house prices and rising mortgage rates have not been enough to deter buyers yet.
A much more important recent high this week was the high in Treasury yields. The 10-year Treasury yield hit 1.70%, the highest level since March and up 53bp since the August low of 1.17%. Even more important for institutional portfolio managers that tend to purchase more bonds in the “belly” of the curve, the 5-year Treasury yield hit 1.24%, the highest level since March 2020 and nearly double the August low of 0.64%. This is very good news for institutions that continue to hold near record amounts of excess liquidity and are looking for opportunities to invest. The yield pickup moving funds out of Federal Reserve balances and into the 5-year Treasury is now more than 100bp, the highest yield pickup in more than 3 years.
We’ll get a much better read on the economy next week with reports on New Home Sales, Durable Goods, Personal Income & Spending, PCE Inflation and GDP. Estimates for 3rd Quarter GDP has been falling steadily over the last several months with economists forecasting 2.4% growth while the Atlanta Fed’s GDPNow model estimating just 0.5% growth in Q3 (see chart below).
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