The 10-year Treasury yield has been rising aggressively on the back of stronger-than-expected economic data
This is a major headwind for equities pic.twitter.com/C0Xc2ZAf8x
— Game of Trades (@GameofTrades_) August 14, 2023
twitter.com/WinfieldSmart/status/1691087531813515264
#Bonds are starting to look bad… US Treasury term premia (black) are breaking higher and pushing 10y yields up (orange). This isn't good for #liquidity which uses a lot of collateral pic.twitter.com/7RkuYWcNLo
— CrossBorder Capital (@crossbordercap) August 11, 2023
US 10-year yields hit 4.2%, the highest level since November and just 4bp away from an October level that was the highest since 2007. pic.twitter.com/DBDp3rjMsi
— Lisa Abramowicz (@lisaabramowicz1) August 14, 2023
Mega cap tech/long-duration growth stocks have been a primary source of weakness so far in August. pic.twitter.com/KZola0xylv
— Longview Economics (@Lvieweconomics) August 14, 2023
A good indicator.
Twice – March 2020 and October 2022 flagged the bottom. Although, required a retest the second time. pic.twitter.com/yRohSts5Ev
— Mac10 (@SuburbanDrone) August 13, 2023
Bankruptcies,Delinquencies, Collections and Consumer Foreclosures
Consumers have been recklessly spending and accumulating debt, especially by borrowing heavily for home purchases. Despite the hype, foreclosures in Q2 have surged to 38,840. While this might seem lower than pre-pandemic levels, the rapid 340% increase since early 2021 is alarming. Foreclosure bans during the pandemic artificially suppressed numbers, masking potential issues. The real threat looms for homeowners if home values plummet. Current homeowners, especially recent buyers who minimized down payments, are vulnerable. Furthermore, delinquencies in mortgages and HELOCs are ticking up, hinting at a brewing crisis. Albeit from historical lows, the rise in third-party collections and consumer bankruptcies is concerning.
The U.S. Consumer Is About To Go Bust
The U.S. consumer’s financial health directly impacts the country’s economic outlook. Recent indicators hint at a situation reminiscent of the period leading to the 2008 Great Recession. Key signs of concern include: 1. Household income, adjusted for inflation and taxes, has dropped 9.1% since April 2020. 2. Credit card debt exceeded $1 trillion, with average interest rates over 20%. 3. Rising credit card delinquency rates, highest since 2012. 4. More Americans are withdrawing from their 401(k) plans due to financial distress. 5. The cost of homeownership has risen by 20% in the past year. 6. The national rent-to-income ratio has been over 30% for two consecutive years. 7. Vehicle repair costs have surged by nearly 20% in a year. 8. 69% of urban consumers live paycheck to paycheck.
The Credit Market Is ‘Next Shoe to Drop’
The chief investment officer of Guggenheim Partners, managing over $225 billion, is focusing on high-quality bonds and anticipating challenges in the credit market. Despite market optimism, she foresees potential risks, especially for lower-quality borrowers, given the Federal Reserve’s stance and the likelihood of increasing defaults and bankruptcies. While high-quality credit remains relatively stable, weaker credits without significant cash reserves could struggle.