Independent Financial Research & Analysis
Daily briefings, 7,600+ real-time charts, and macro insights from Dr. Ed Yardeni and his research team.
Research
Latest Research
Recent insights from our research team
Freaking Out Over The Bond Market
I. Bonds On Wednesday, the Treasury Department announced that it was doubling the size of its effort to buy back Treasury securities with maturities between 10 and 30 years, to $4 billion per operation. Long-dated Treasury borrowing costs had been rising sharply amid competition for capital from AI data-center builders, and on worries about government deficits. US sovereign debt hit a record $40 trillion on Wednesday. Bond yields fell slightly on yesterday's news. Today, they edged back up (chart). So, has Treasury Secretary Scott Bessent's attempt to stabilize the bond market already failed? Does this mean that a government debt crisis is imminent? That seems to be the reaction of a few commentators, especially those who have been predicting such a crisis for many years. As we noted yesterday, Treasury buybacks are structured to repurchase older, less liquid ("off-the-run") government bonds from primary dealers, freeing up dealer balance sheets and improving secondary market functioning. Bessent isn't trying to lower bond yields. Rather, he is trying to stabilize them so Treasury auctions go smoothly, particularly yesterday's 20-year auction. So we are sticking with our base-case scenario for the bond market. We expect that the 10-year Treasury yield will remain in a 4.00%-5.00% range through the end of this year and next year. Our relatively constructive view reflects that Bessent's Treasury is following former Treasury Secretary Janet Yellen's 2023 playbook by financing more of the deficit in the Treasury bill market (chart). In effect, the Treasury is forcing the Fed to buy Treasury bills to keep the federal funds rate from rising. In the short term, the recent drop in the Citigroup Economic Surprise Index should also help stabilize the bond market (chart). II. Stocks Stock prices remain near their recent record highs despite jitters over the recent rise in bond yields (chart). We recently observed that according to the Fed's Stock Valuation Model, a 5.00% Treasury yield implies that the fair value of the forward P/E of the S&P 500 is 20.0, which is where it is now. The recent pullback has been widespread. Nevertheless, we still expect that the Impressive 493 will continue to outperform the Magnificent-7 this year and probably next year too (chart). The two bull-bear ratios we monitor are mixed (chart). Collectively, they suggest that the current pullback should be modest. III. Inflation Commodity prices suggest that significant inflationary pressure remains in the pipeline. Diesel prices have soared more than crude oil prices this year (chart). Metal prices are also up sharply on AI-related demand. Wheat prices are rising amid concerns that Russia will block Ukraine's grain exports. The regional prices-paid and prices-received indexes for the NY and Philly Fed districts edged down in August, but remain elevated (chart). IV. Economic Indicators Meanwhile, the economy continues to perform well. The Index of Coincident Indicators (CEI) rose 0.2% m/m to a new record high in July (chart). S&P 500 forward earnings is highly correlated with the CEI. The former has been rising faster than the latter in recent months. The spread between the growth rates of forward earnings and the CEI is highly cyclical and currently shows profits outpacing the CEI (chart). That is consistent with profit margins, which are rising rapidly to record highs. July's average business indexes for the NY and Philly Fed districts are soaring in August (chart). The initial and continuing unemployment insurance claims data series remain subdued (chart).
On Retailers, Insurers & AI Scientists
The tides of consumer spending have shifted toward clothing and household goods and away from cars, homes, and casinos. At least that’s what the ytd performance stats of industries in the S&P 500 Consumer Discretionary sector indicate, Jackie reports. Supporting that narrative: A glowing management update from Target, which reported better-than-expected results this week. … Also: A look at the federal investigation into TWG Global’s companies. Could it be the first of many issues with insurers owned by large money management firms? … And: Claude and Rosalind don lab coats to help advance science.
Bessent's Put For The Bond Vigilantes & More On Fed's Hawks vs Owls Debate
I. The US Treasury Today, the US Treasury announced it is at least doubling its liquidity-support buyback operations for longer-dated government debt. Long-end yields fell sharply after this morning's release (chart). Treasury Secretary Scott Bessent is signaling that he will do whatever it takes to keep a lid on bond yields. His message to the Bond Vigilantes: "You folks aren't the only players in the bond market." On November 1, 2023, Treasury Secretary Janet Yellen sent the same message to the Bond Vigilantes when the Treasury announced plans to finance more of the swelling federal government deficit with Treasury bills (chart). That reversed the yield spike that saw the 10-year Treasury yield soar from 4.00% in early August to 5.00% at the end of October that year. Apparently, Bessent is relying on Yellen's playbook given that marketable Treasury bills held by the public rose $1.0 trillion over the 12 months through July. Treasury buybacks are structured to repurchase older, less liquid ("off-the-run") government bonds from primary dealers, freeing up dealer balance sheets and improving secondary market functioning. Here are the details of today's announcement: The Treasury has the tools to influence the shape and level of the yield curve to some degree. Bessent intends to use them to counter any serious attempt by the Bond Vigilantes to push yields higher. II. Financial Markets The 10-year yield fell from 4.71% to 4.65% today. Fears of spiking to 5.00% abated rapidly. The S&P 500 edged up 0.2% (chart). The index's Health Care sector jumped 3.5% as Moderna shares surged sharply following landmark Phase 3 clinical trial results for its investigational mRNA cancer therapy developed in partnership with Merck. The Financials and Information Technology sectors fell slightly today. In other words, the stock market's relief rally was muted. That's because the July FOMC minutes were released today. They had a hawkish tilt. Gold, on the other hand, rallied by more than $130 per ounce back to its 200-day moving average (chart). Our year-end target is still $5,000. The drop in yields pushed the US Dollar Index lower (chart). III. The Fed The July FOMC minutes support our view that the Committee is divided between hawks and owls. Hawks are likely to favor another hike in September, while owls want more evidence on inflation's persistence before deciding what to do next. Here are six key takeaways: (1) The hawks are digging in. The minutes revealed a sizable hawkish bloc. Hammack, Kashkari, and Logan dissented in favor of an immediate 25bp hike in July, while others also supported tightening. They argued that "price pressures appeared broad-based" and that the Committee "should adopt a more restrictive policy stance" to ensure inflation returns to target. Some argued that acting sooner could "help forestall the need for a steeper and potentially more costly sequence of tightening moves at a later stage." (2) There are no doves. Hawks believe inflation persistence is already evident and favor hiking now. Owls share the same concerns but prefer to wait for more evidence. Unlike doves, they remain focused on inflation and are willing to tighten if needed. The minutes showed no appetite for rate cuts, with the debate centered on whether to hike now or wait. (3) Inflation keeps finding new reasons to stay elevated. Participants noted that inflation risks remain "skewed to the upside" and that "successive supply shocks have repeatedly delayed the expected return of inflation to 2 percent in recent years." The Middle East conflict, tariffs, and AI-related demand pressures were cited as causes of inflation's persistence, while years of above-target inflation risked influencing inflation expectations and wage- and price-setting behavior. (4) The economy is giving the Fed little reason for concern. Participants said activity had "continued to expand at a solid pace," supported by "strong business investment and resilient consumer spending." Labor market conditions were viewed as "stable, with labor demand and supply in balance," while some noted they had even "strengthened modestly." Strong AI-related investment, healthy credit availability, supportive financial conditions, and positive wealth effects reinforced the view that the economy remains resilient. (5) AI is increasingly seen as an inflationary force. AI was discussed as a macroeconomic force affecting investment, labor markets, inflation, and financial stability. Participants observed that AI-related industries were generating "strong demand for skilled workers, including electricians, machinists, and engineers, leading to notable increases in their wages," while others argued that AI investment was already "pushing up aggregate demand." Productivity gains could eventually ease inflation pressures, but the timing remained uncertain. (6) Warsh wants fewer meetings. Fed Chair Kevin Warsh suggested "six scheduled meetings per year, held roughly every two months," down from eight currently, and emphasized that he had "asked for input from the Committee on these issues." No decision was made. The discussion also included balance-sheet policy, though many participants reiterated that the federal funds rate should remain the primary policy tool.
Archive
Our Research Library
19 years of daily research, charts, and analysis
Topics
QuickTakes Topics
Timely commentary covering the most important market themes
Charts
Find Any Chart in Seconds
Search across 7,614+ real-time charts with instant visual previews
TARGET: FORWARD P/E
WELLS FARGO: FORWARD LTEG, STRG & STEG
CONOCOPHILLIPS: FORWARD P/E
S&P 500 CONSUMER DISCRETIONARY SECTOR & INDUSTRIES: ANNUAL EARNING GROWTH FORECAST
Sample charts from our collection of 7,614+ visualizations
Tools
Research Tools
Interactive dashboards for tracking economic conditions and market trends
Beige Book Monitor
Fed economic conditions across 12 districts with traffic-light signals.
FOMC Policy Meter
Dovish-to-hawkish policy stance tracker across FOMC meetings.
FOMC Minutes Monitor
Hawk/dove signal extraction across 10 economic themes.
FOMC SEP Monitor
Fed projections and dot plot distributions across meetings.
FOMC Statements
Every FOMC policy statement since 1997 — full text, rates, and voting records.
Private Credit Monitor
Auto-updating chronology of the private credit liquidity crisis.
Release Calendar
Major publications from the Fed, ECB, IMF, and 12 global institutions.
Try Yardeni Research free for four weeks.
Full access to everything we publish. No credit card, no obligation.