[replay] #RatesRising: Q3 Macro Theme #1

Takeaway: The Queen Mary of macro trends has turned.

As Hedgeye's Macro Team prepares to release its highly anticipated quarterly Macro Themes for Q1 in early January, we take a brief look back at #RatesRising as detailed by CEO Keith McCullough. This theme was one of our top macro calls of 2013. It seems only fitting as the 10-year note nestles in north of 3.00%.

 

 

As we wrote back in August, the "Queen Mary" analogy is appropriate for interest rates as they have literally been in decline for the last 30 years since peaking in the early 1980s.  This long term decline has enabled any business that depends on borrowing money to fund its business to have a steadily declining cost of capital.  In addition, this has made bonds a compelling asset class with a long term underlying bid to price.

 

In our models in Q2, yields inflected notably and broke out above our TRADE, TREND and TAIL levels.  In fact, 10-year yields had their largest percentage increase quarter-over-quarter in more than a decade.  Even though 10-year yields have broken out, they remain well below the mean yield since 1989 of 5.21%.

 

[replay] #RatesRising: Q3 Macro Theme #1 - qm

 

The seismic shift in interest rates will certainly be one of the most critical factors over the coming quarters and years.  As money flows from the bond market to avoid losses, equities will be awaiting with open arms.

 

After all, while gentleman may prefer bonds, they don’t prefer losses.

 

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