Everyone knows that global economies are improving and that interest rates are rising with them. Stock markets have been on a tear in several countries.
But something funny may be going on. Japan has talked its yen down by threatening 2% inflation, correct? If so, why has its 10-year JGB been unable to even get up above 80 basis points? It is now at 0.78%, down 19 bps from a year ago and down from as high as around 1.10% from a little more than a year ago. Maybe what's really going on is that Japan's economy is really, really weak, given ongoing population declines. Thus- perhaps- the super-low interest rates and revaluation of the yen downward by traders, rather than, or in addition to, the threats of massive money-printing.
Germany has seen some positive economic news recently. Its 5-year government bond, the Bund, traded up to 80 bps as recently as Jan. 30. Since then it has collapsed down to 67 bps. If its economy were really rebounding and the rest of the eurozone and the EU were stabilizing and getting ready for some green shoots action, it might pause at 80 bps, perhaps sell off a few bps, and then move on up. That, for example, is what happened in 2009 as the Great Recession bottomed.
The German 5 and 10 year Bunds are each down a large 19 bps from one year ago.
Similarly, rates have started dropping again in the UK.
The US may be different, but then the US stock market has been stronger for longer periods, thus more optimism may already be embedded in US stock prices than in other regions where economic growth has been more challenged.
In other words, the recent action of interest rates is in the direction of predicting slower nominal GDP growth, which contradicts the message of the stock markets. This is not definitive, of course, and rates may be starting on up as I write this, but that's the world of trading, of course. When a trend is obvious, much of the move has been missed.
In conjunction with recent Vickers data that insider selling has hit its highest ratio to insider buying in almost a year, stocks may finally be ready to drop, at least for a while.