Gurshawn Jagpal

Although the markets recovered a little from their drop yesterday, the fear of higher developed nations’ sovereign yields is plaguing the markets. As the risk-free rate rises, that should in theory pressure both Gold and high growth stocks. The conflict in Persia is adding to the pressure.

Across the developed world, bond yields are rising. They are reaching multi-year highs. During the pre-covid times and peak COVID times, large sums of money were being put towards these sovereign debt instruments to the point that yields were at 0%. For some countries like Germany and Japan, bond yields were even negative. ITS CRAZY TO SEE HOW TIMES HAVE CHANGED!!!! In my opinion, yields between 3.5 to 5% treasury yields are more at normal levels. When yields were around 0%, people thought the capital flows were being distorted as more capital went to otherwise riskier investments as investors were trying to make up for a low risk-free rate (the term used for this was reach for yield).

The market says there are many causes for higher yields ranging from high inflation risks, the war with Persia, some are even saying that high debt issuance from AI companies is causing debt yields across the fixed income space to rise, etc. Some are even saying that bond yields across the developed world are rising as governmental debt around the world is rising.

In my opinion, the yields are rising because of inflation risks and central banks around the world aren’t engaging in expansionary monetary policy anymore. I don’t buy the theory that they are rising due to fears of governments increasing their debt/GDP levels as they have been rising in the past 30 years around the world. Although some very smart people say that rising debt issuance from AI companies (Nvidia, Google, etc.) are causing yields to rise, I still think they are rising due to inflation risks. I believe there are funds that purely engage in corporate debt and funds whose main mandate is sovereign debt. Thus, investors buying AI debt wouldn’t impact sovereign debt yields in my opinion.  

A chart of 10-year US treasury yields. Chart is from tradingview.com

A chart of the 9-Year Japanese Government bond yields. Chart is from tradingview.com

A Chart of the 10-Year United Kingdom Sovereign Debt Yields. Chart is from tradingview.com

10 Year Germany government bond yields. Chart is from tradingview.com

In my opinion, Treasury Secretary Scott Bessent will try his best to talk down treasury bond yields. They will try to convince the market of a possible intervention to try to lower treasury yields. However, the trends still seem strong on the upside unfortunately.

The Japanese Yen rose today due to possible intervention talks. Treasury Secretary Scott Bessent has been trying to help the Japanese government stop the fall in the Japanese Yen. Since Japan is a large creditor nation, the lower the yen becomes, the more profitable it is for Japanese Investors to convert their foreign investments including in US assets back to Japan. Watch the USDJPY (US Dollar in terms of Japanese Yen) at 160. As you can see from the chart, the USDJPY falls once the level hits 160. The market believes at 160, the Japanese government will intervene at that level. I bought some Japanese Yen (through FXY) to play this trend. (My position, not a recommendation).

Nvidia is strongly up today. In my opinion, the reason is cause of the strong earnings and earnings outlook from Dell. Dell reported strong earnings from their Servers as they sell them to Neocloud, cloud and other mega hyperscalers.  Dell will incorporate Nvidia’s new Vera Rubin System. In my opinion, Dell just recovered yesterday’s losses. New momentum in Dell isn’t building as it’s already been priced in.

I think gold and financial stocks rallied a little today as just a relief rally from yesterday. However, I believe that for the markets as a whole, high oil prices and treasury yields that keep rising would cap any upside.

Currently, I am just at the wait and see mode in the markets. Usually, September is weak for the equity markets. Risks remain from high government yields, oil prices rising, and a Federal Reserve more wary of inflation risks. However, I believe the trend for the markets is still up. I am most likely going to add on dips (this isn’t a recommendation, but rather my opinion).

Working notes. I used AI only to clean grammar. The views are mine. Not investment, tax, or legal advice.