Rates Shooting Way Up Soon – Here’s Why

There are two reasons why rates could shoot way higher over the next month or two.

1. Inflation Reports
2. Oversupply of Treasuries (Government Borrowing)

With respect to inflation, we could see an apparent “resurgence” tomorrow when Consumer Price Index (CPI) numbers are released. This is because the CPI report will be for July and the comparisons are year-over-year, meaning that July of 2023 will be compared to July of 2022. And because July of 2022 was a very low reading, July of 2023 could come in relatively high. This is precisely the opposite of what happened with May’s report, which compared a very high April of 2022 number to April of 2023.

In addition, the Fed is expecting the September report (for August inflation) to be high too because of recently surging energy prices.

With respect to Treasuries, our government is going to do a record amount of borrowing over the next two quarters for a few reasons: (1) Our politicians spend money like drunken, crack-addicted, fentanyl-laden, cocaine-addled sailors who have one day to live and don’t care at all about the future; (2) our tax receipts are coming in at far lower levels than anticipated (another recession sign) forcing the government to borrow far more than previously anticipated; and (3) Treasury Secretary Janet Yellen is borrowing even more to replenish her giant government checking account that was bled dry during the debt ceiling crisis.

The government will borrow $1.7 trillion in Q3 and an additional $1.8 trillion in Q4 – and this massive oversupply of debt will push treasury prices down and yields (rates) up (the government will be forced to offer higher yields to attract buyers).

 

WWSS: What Would Snider Say?

So, the obvious question is What Would Snider Say? Jeff Snider would say this: Bahahahahahahahahahahahahahahahahaha…

But after he calmed down, Snider would probably also say this:

1. Rates Should Have Climbed Already! The fact that rates have not shot up way higher already in response to this information is concrete proof of the bond market’s concern about the economy and the likelihood of lower rates in the future despite this news.
2. Producer Prices Are Crashing! The prices that producers charge for both services and goods worldwide are falling quickly (shipping costs are really plummeting, for example). And lower producer prices always precede lower consumer prices.
3. China Is Crashing! GDP growth is slowing way down; its manufacturing numbers are abysmal; its real estate sector is on the ropes; and, most tellingly, its import and export numbers are shockingly low. The import/export numbers are the most telling per Snider because they tell us that the rest of the world is slowing way down too – and that we are facing a “globally synchronized” recession, where the entire world suffers through an economic slowdown together.

The purpose of this blog is to remind readers that rates never move in a straight line and that they will bounce up and down over the next few months. Tomorrow’s inflation reports could be benign and rates may not shoot up. But if they do shoot up, readers should neither panic nor be surprised. Volatility is in the cards, and we will see a lot of it. In addition, if anyone thinks we won’t see a recession, they are probably drunk, crack-addicted, fentanyl-laden, and cocaine-addled…