The directional bias for US economic activity continues to skew slightly negative, based on CapitalSpectator.com’s Macro Trend Index (MTI). Although the economy is still expanding at a solid pace, MTI still indicates that a downside bias persists for the directional trend. The negative tilt, however, is fractional and so the overall signal remains in neutral terrain.
Macro Briefing: 6 August 2021
* Pandemic puts tens of millions around the world on the brink of famine
* Delta variant threatens the US labor market rebound
* Infrastructure bill estimated to add $256 billion to US deficit
* Biden wants half of US cars sold by 2030 to be electric or hybrid
* Bond rates are falling and yield curves are flattening around the world
* Will Fed plans for a digital currency eventually displace crypto?
* US trade deficit widened to a record in June
* US jobless claims fell last week, close to pandemic low:
The ETF Portfolio Strategist: 5 August 2021
In an upcoming issue, we’ll be adding a proxy for mean-reversion potential to the lineup of risk metrics. Here’s a preview.
10-Year Treasury Yield ‘Fair Value’ Estimate: 5 August 2021
The 10-year Treasury yield held steady at 1.19% yesterday (Aug. 4). The current rate marks the third time in recent history that the 10-year yield slipped to 1.19%, which reflects a six-month low.
10-Year Treasury Yield Fair-Value Estimate
The Capital Spectator estimates the “fair value” of the 10-year Treasury yield by using the average estimate from three models:
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- Shevlin model, based on an article by Tom Shevlin, published in The Journal of Investment Management: “A Model of Bond Value: Explaining Yields With Growth and Inflation.” The model uses two inputs to estimate the fair value of the 10-year rate: 1) gross
domestic product (GDP) and 2) inflation rate. - Frontier model, based on a research note published by Frontier Advisors: “Frontier’s Quantitative ‘Fair Value’ Bond Models.” The model uses three inputs to estimate the fair value of the 10-year rate: 1) US unemployment gap (difference between the unemployment rate and CBO’s estimate of the non-accelerating inflation rate of unemployment); 2) volatility of 10-year yield; and 3) momentum of 10-year Treasury yield.
- BB model, based on an article published by Bloomberg: “Long-end bear-steepening signaled from Treasury yield scorecard.” The model uses five inputs to estimate the fair value of the 10-year rate:
- Shevlin model, based on an article by Tom Shevlin, published in The Journal of Investment Management: “A Model of Bond Value: Explaining Yields With Growth and Inflation.” The model uses two inputs to estimate the fair value of the 10-year rate: 1) gross
* GDP growth
* year-over-year Consumer Price Index (headline)
* Federal Reserve assets as % of GDP
* Fed funds target rate
* 1-year/3-year curve to estimate Fed bias
For additional analysis on fair-value estimates of the 10-year yield, see these CapitalSpectator.com articles:
“Estimating Fair Value For The 10-Year Treasury Yield”
“Estimating Fair Value For The 10-Year Treasury Yield, Part II”
“Estimating Fair Value For The 10-Year Treasury Yield, Part III”
Macro Briefing: 5 August 2021
* US Covid-19 cases rebound to six-month high
* Federal Reserve vice chair says rate hike likely in 2023
* Are US jobless claims stuck at a permanently higher plateau?
* Global growth slipped to 4-month low in July via PMI survey data
* Global value of negative-yielding bonds rises to six-month high ($16.5 trillion)
* German factory orders rebounded more than expected in June
* ISM Services Index rebounded in July, reaching record high (since 1997)
* US firms hired substantially fewer workers than expected in July, ADP reports:
Major Asset Classes | July 2021 | Risk Profile
An extraordinary run of low risk persists for the Global Market Index (GMI), an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash). After the benchmark posted another monthly gain in July, risk-adjusted performance ticked higher once again.
Macro Briefing: 4 August 2021
* Biden administration issues new national eviction moratorium
* Delta variant poses biggest challenge for China since pandemic’s start
* Bond yields remain under pressure due to worries about Delta variant
* Businesses have record amounts of unused credit from US banks
* China economic growth accelerated in July via Composite Output Index
* Eurozone economy expanded in July at fastest rate since 2006
* UK inflationary pressures reach record high in July
* US factory orders rose more than expected in June:
Risk Premia Forecasts: Major Asset Classes | 3 August 2021
Correction: Data table below is incorrectly labeled as June 2021; should be July 2021. Apologies
The projected risk premium for the Global Market (GMI) held steady in July at an annualized 6.0%, unchanged from the previous month. That’s a comparatively elevated level vs. estimates in recent history. The forecast reflects the long-run outlook for GMI’s return over the “risk-free” rate, which is proxied with the yield on a 3-month Treasury bill.
Macro Briefing: 3 August 2021
* Fed faces increasingly uncertain autumn due to Delta variant of coronavirus
* Asia’s economic recovery is increasingly vulnerable to Delta variant
* SEC chairman considers tougher regulations for crypto investing
* Global chip shortage that’s bedeviled car industry expected to continue
* Global Mfg PMI slipped in July but continues to indicate solid growth
* US mfg growth slowed for a second month in July via ISM survey data
* US construction spending edged up in June but trend still moving sideways
* US 10-Year Treasury yield fell to 1.20% on Monday–just above 6-month low:
