Bond Yields, Fed Head and Unsustainable Markets

Market expectations are all over the place as participants factor in what a new Fed appointment might mean in terms of lower for longer rates and more accommodative policy – but it all feels increasingly hollow. Momentum is not infinite!

Blain’s Morning Porridge, Nov 10th 2021: Bond Yields, Fed Head and Unsustainable Markets

“Why stop at six impossible things before breakfast?”

This morning: Market expectations are all over the place as participants factor in what a new Fed appointment might mean in terms of lower for longer rates and more accommodative policy – but it all feels increasingly hollow. Momentum is not infinite!

It’s a fantastic day here in Dubai as I settle into my new office… which means a short comment as I’ve got meetings.. Back with a full dissection of what’s really happening in markets tomorrow!

Over the past few days it’s been a bit of a roller coaster in bond markets as fears of coordinated global interest rate hikes and a bear steepening in yields (rates rising across the board, but more in longer dates) have been replaced by expectations of lower for longer. Personally, I reckon as “transitory” inflation sets like concrete on economies it is inevitable rates around the globe will have to rise, triggering a bond market crisis that is going to crush markets…. but, hey, that’s tomorrow and in markets; tomorrow is tomorrow…

According to Bloomberg, Lael Brainard is being sized up for Jay Powell’ job as Fed-Head when his term expires next year. The market’s immediate take-away was a dovish Brainard will steer the Fed to being supportive of keeping rates lower for longer and continue juicing markets – and all that monetary distortion from ultra-low rates will continue to fuel the absolute madness in soaring financial asset prices, especially certain stocks.

Will Brainard get the gig? Powell has attracted too much opprobrium from senior Democrats, has brushed with scandal over Fed members front running rate decisions, and because he’s a card-carrying Republican who favours light regulation. Brainard is politically more palatable as a Democrat with a taste for more regulation. That she is a highly qualified woman should not make any difference – but it will.  Powell is the incumbent, and therefore has the experience Brainard does not.

The excellent John Authers, on Bloomberg, reckons a compromise is likely. Powell keeps the job and Brainard gets an enhanced deputy role and oversight of Regulation. Powell must have some great lobbyists on his side working the FT, which says: Jay Powell should get a second term at the Fed. They say Powell did a solid job, and that replacing him now would be like “changing horses midstream.”

We should know sometime over the next few weeks who gets what job. Its just another piece of the noise markets are currently driving themselves on.

How much longer can this continue?

It says a lot about the market’s current mood that we don’t even blink each day the S&P hits new records, or yields plummet ever deeper downwards. That improbable firms are worth billions and the junk bond market trades close to zero yields? That bitcoin – an ersatz currency no one uses except as asset in the hope someone else will want it – has hit new record highs?

We’ve become immured to gains rolling on and on. Has the ongoing froth made us complacent?

Of course.

As I read the dark nooks and crannies of investment pages I’ve never come across such disbelief at current valuations, yet never seen so much money chasing such intangible large-risk returns. Its crazy. Its madness.. and everyone is doing it.

Just how long can stocks and bonds maintain the current momentum? Longer than you think, but not as long as your portfolio hopes..

Time to remind everyone of Blain’s Mantra No 1: The Market has but one objective; to inflict the maximum amount of pain on the greatest number of participants!


Yesterday was my first proper intercontinental business flight in 20 months, and let me assure you… it’s not changed. British Airways retains its crown for the most uncomfortable seat and its anyone’s guess what it was they served for lunch. The grilled chicken sandwich just before landing was incredibly pointless; two tiny limp triangles with what may have been a single molecule thick slice of chicken served lukewarm… I wondered why they bothered.

But the bottom line is Global Travel is re-opening and I’m going to look at how that impacts one of my favourite markets: aircraft. From the new B-777x that just turned up for the Dubai Airshow, to demand for short-haul narrow bodies… I’d welcome any comment from industry readers on how they see the future developing.

Five Things to Read This Morning:

FT – Bonds are a blind spot in ESG Investing

Thunderer – Bitcoin hits new highs on inflation fears

Torygraph – Chancellor vows to turbocharge City with Post-Brexit purge of EU rules

Bloomberg – Stop, I’m Tired of Hearing about Climate Goals

WSJ – The End of GE We Knew

Out of time, and back to both my day jobs..

Bill Blain

Head of Alternatives – Shard Capital, in Dubai