The Bear Case For These Fed Fueled Rallies

The Bear Case For These Fed Fueled Rallies

$DIA, $SPY, $QQQ, $VXX

The CEO of JPMorgan Chase & Co.(NYSE:JPM), Jamie Diamond, said he is concerned demand for US Treasuries will decline and the Fed will raise interest rates faster than people expect.

Expect that the stock market will be affected in kind.

Mr. Dimon wrote in his annual letter to shareholders Wednesday, that the market will not be able to rely on the biggest buyers of US debt: the Fed, foreign nations and commercial banks, .

Increasing consumer and business confidence could boost demand for credit and reduce investor appetite for the haven of US Treasuries, he said.

“These 3 buyers of US Treasuries will not be there in the future,” Mr. Dimon wrote. “If this scenario were to happen with interest rates on 10-yr Treasuries on the rise, the result is unlikely to be as smooth as we all might hope for.” JPMorgan is one of the 22 primary dealers that underwrite the US debt and trade with the Fed.

• US Treasury Yield Check at the close Thursday
  • 2-yr: -4 bpts to 0.70%
  • 5-yr: -6 bpts to 1.14%
  • 10-yr: -6 bpts to 1.69%
  • 30-yr: -7 bpys to 2.51%

Mr. Dimon’s Bear case matches the consensus among economists surveyed, who see yields rising through the course of Y 2016. The 10-yr yield will climb to 1.92% by 30 June, and 2.25% by 31 December, based on a survey of economists with the most recent forecasts given the heaviest weighting.

The US Fed policy makers reached a broad agreement to go slowly in raising US interest rates due to increasing global risks, according to minutes of their March meeting published Wednesday.

“Several expressed the view that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” according to the minutes of their 15-16 March gathering.

US Treasuries returned 3.2% in Q-1 of Y 2016, the biggest Quarterly gain in almost 4 years, based on the Bloomberg World Bond Indexes.

The Treasury market rallied as a decline in stocks and Crude Oil sent investors to the safest securities.

Japan’s investors pared their holdings of foreign bonds at the fastest pace in almost 10 months as they adjusted positions before the start of the fiscal year. They sold a net JPY 1.6-T ($14.7-B) in overseas debt during the week ended 1 April, the most since June, according to Ministry of Finance data released Thursday.

Thursday the US major stock market indexes finished at: DJIA -174.09 at 17541.96, NAS Comp -72.34 at 4848.37, S&P 500 -24.67 at 2041.99

Volume: Trade was above average with about 914-M/shares exchanged on the NYSE.

• Russell 2000 -3.8% YTD
• NAS Comp -3.2% YTD
• S&P 500 -0.1% YTD
• DJIA +0.7% YTD

Stay tuned…

Paul Ebeling

HeffX-LTN

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